Layoffs Starting to Spread As US Recession Looms
Reuters | 17 Oct 2008 | 05:10 PM ET
Shockwaves from the global financial crisis are now being felt in almost every corner of working America as companies press the eject button on increasing numbers of their employees.
While the ax has been falling for months in the financial, homebuilding and auto industries—where the current economic downturn started—makers of everything from soft drinks to water filtration systems have unveiled rounds of job cuts in recent weeks as they brace for what could become a long and deep recession.
This week alone, companies including PepsiCo [PEP 53.88 0.80 (+1.51%) ] and Danaher said they would lay off thousands of workers, while the state of Massachusetts disclosed plans to cut its payroll by 1,000 as it faces a tax shortfall.
The situation is poised to worsen as the holidays approach as many businesses scrutinize budgets for the coming year. Christmas layoffs are common in tough times.
"It's a fairly grim outlook," said Michael Goodman, director of economic and public policy research at the Donahue Institute of the University of Massachusetts. "I don't know of any sector of the economy that will be spared."
A four-week moving average of new U.S. government jobless claims last week hit its highest point in seven years.
Ed Yardeni, chief investment strategist for Yardeni Research, is hoping that the U.S. government's $700 billion bailout package will slow the job cuts.
"If this rescue plan doesn't work, then...you could see something much worse that could feel like a recession or a depression, with all sorts of people losing jobs," he said.
A survey of more than 100 chief financial officers and other senior executives—conducted Wednesday—found 56 percent expect to reduce payrolls over the coming year.
A majority polled by CFO Magazine also predicted falling revenues and plan to cut operating costs by at least 5 percent.
Workers are scared.
Some 47 percent polled last month by Workplace Options said news of the financial crisis made them fearful about job security, and 25 percent said they had begun scanning help-wanted ads or updating their resumes.
"I'm being more conservative about spending, I'm concerned," said Donald Gaunt, a 52-year-old construction worker from Smithville, Rhode Island, who said he had work through the end of this year but wasn't sure about 2009. "It hasn't been this bad since the early 1980s."
Workers in the financial sector, as well as those related to home building and at the Detroit automakers, have been hit by round after round of layoffs this year.
The failure of investment banks Lehman Brothers Holdings and Bear Stearns resulted in tens of thousands of people losing their jobs, but even banks that have survived the crisis, including Bank of America [BAC 23.24 -1.01 (-4.16%) ] and Citigroup [C 14.88 -1.02 (-6.42%) ] have cut head count dramatically.
General Motors [GM 6.43 0.03 (+0.47%) ] said this week that it would close plants in Michigan, Wisconsin and Delaware and cut more than 4,000 jobs. That's already started to ripple.
U.S. auto supplier BorgWarner [BWA 21.94 0.72 (+3.39%) ] said Friday it plans to cut up to 1,250 jobs in the United States—250 more than previously planned—in response to production cutbacks by carmakers it supplies.
And the layoffs are spreading into other sectors:
—PepsiCo Tuesday said it would cut 3,300 jobs, almost 2 percent of its work force, in a bid to cut costs.
—Danaher, which also makes Craftsman tools, said Thursday it would lay off 1,000 workers and close 12 plants.
—Rockwell Automation [ROK 27.50 0.22 (+0.81%) ] said it would lay off about 3 percent of its staff, or 600 people.
That news came on Sept. 30, the last day of the U.S. manufacturer's fiscal year.
—Textron [TXT 19.12 -1.07 (-5.3%) ], the world's largest maker of corporate jets, said an unspecified number of jobs would be cut as it scales back its financial operation.
—Leggett & Platt [LEG 16.29 -2.28 (-12.28%) ], which makes bed springs and store shelving, said it was cutting back hours at some factories and, in the words of Chief Executive Dave Haffner, "must move to reduce staff. We are already doing so." It did not disclose the number of jobs it plans to eliminate.
Temporary employment also may prove harder to find.
Consumer electronics retailer Best Buy [BBY 24.75 -0.32 (-1.28%) ], which normally bulks up staffing in the holiday season, plans to cut seasonal hiring by as many as 10,000 workers this year.
"When we see job losses and rising unemployment, this does not just affect those who lost their job," said Lawrence Mishel, president of the partly labor-funded Economic Policy Institute think tank.
"Wages grow more slowly when there's higher unemployment, so the downturn will be affecting most working families through reduced hours of work ...
This is not something that affects a small part of the workforce." With the pace of layoffs picking up, the cycle becomes a vicious one, pressuring consumer spending and hurting home values yet again.
"As people lose their jobs, they cut back on their consumption, and people are less able to afford their mortgages, which are already strained.
And so people lose their houses, which continues to aggravate the financial problems.
So it's reinforcing in that way and it's also spreading," said Ron Blackwell, chief economist at the AFL-CIO, the largest U.S. labor federation.
"This recession—and I didn't see it this way a month ago—is going to be global in scope."