Job Cuts Continue Rising, Threaten To Deepen Recession
Last update: 1/30/2009 7:36:30 AM
(This article was originally published Thursday.)
By Shara Tibken
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The seemingly unending parade of companies eliminating thousands of jobs threatens to prolong and deepen the recession as those folks leave the work force, lean more on the government for assistance and curtail their overall spending.
Just this week, nearly 20 companies have announced a total of about 125,000 job cuts, and some think the worst is still ahead, with the possibility of up to 2 million more jobs lost within the next six months.
"I think we're seeing the full brunt of the collapse of demand in the fourth quarter," David Resler, chief U.S. economist at Nomura Securities International, told Dow Jones in an interview Thursday. "I think we're well on the iceberg. The tip we saw many, many months ago, and we're finding the iceberg is pretty big."
The announced job cuts this week come as the number of U.S. workers filing claims for jobless benefits soared to a record high Thursday. And durable goods orders and new-home sales tumbled in December, adding to woes. The combination of these factors raises questions about how well the proposed stimulus bill addresses this problem.
Lawrence J. White, a professor of economics at New York University's Stern School Of Business, said the U.S. unemployment rate could reach 9% by the end of the summer or early fall, meaning a loss of about 2 million more jobs.
The Labor Department reported Thursday that the total number of U.S. workers filing claims for jobless benefits lasting more than one week has soared by 3,000 to a record high of 588,000 after seasonal adjustments.
Last week's level was just 1,000 below the highest mark since the 1982 recession, which was reached last month, and continuing claims - those drawn by workers collecting benefits for more than one week - swelled by 159,000 to 4,776,000 in the week ended Jan. 17 - the highest level since the government started keeping track in 1967.
Resler said it's likely the tough environment will remain through 2010 or until demand improves, and that some of the job cuts will be permanent.
"In the past, layoffs were not necessarily a termination of a job, but were a suspension of a job," Resler said. "But some job losses now are of the different sort - permanent losses - as companies are downsizing for the brave new world we're going to be in."
Recovery A Long Way Off
The hemorrhaging of jobs shows no sign of abating. Thursday, U.K.-based drugmaker AstraZeneca Plc (AZN) said it plans to cut 7,400 jobs worldwide by 2013, and film and camera maker Eastman Kodak Co. (EK) said it will cut 3,500 to 4,500 jobs, or 14% to 18% of its work force, this year.
Other companies announcing cuts Thursday included department store Bon-Ton Stores Inc. (BONT), eliminating 1,150 jobs, and home-improvement products maker Black & Decker Corp. (BDK), cutting 1,200 positions.
On a particularly painful Monday, several companies including Caterpillar Inc. (CAT), Sprint Nextel Corp. (S), Pfizer Inc. (PFE), Home Depot Inc. (HD) and General Motors Corp. (GM), all announced significant layoffs. Many firms are also instituting salary freezes. Monday's cuts, nearly 70,000, marked the largest job loss announcement for a single day so far this year.
Joanie Ruge, senior vice president at Adecco SA's (ADEN.VX) Adecco Group North America, said the job-placement company has "certainly" seen an increase in applicants looking for employment.
"It's steadily increasing as the months go by," Ruge told Dow Jones in an interview. She added that applicants are also more willing to work in temporary or long-term contract assignments if permanent positions aren't available.
Though more applicants are looking for work, Ruge said Adecco is seeing fewer available positions.
"We certainly see that many of the clients we're working with are still continuing to find ways to run as lean and efficient as possible and continue layoffs," Ruge said. "We expect it to be difficult into Q2 and possible Q3."
But Ruge said jobs for college-educated applicants are more readily available than for general-labor positions.
"There is a decrease in opportunities, but there are still jobs out there, especially in healthcare and education, and people with technical, engineering and strong IT experience continue to be in high demand."
Deepening Recession
While job cuts could improve specific companies' financial shape, they also could deepen the recession.
"For the immediate future, deep job cuts make it harder to get to recovery because it adds an extra downdraft to demand," Resler said. "People who were buying things when employed are not buying things now."
As a result, the job cuts will likely weigh on the stock market, hurting already battered shares.
"To the extent that job losses pull the economy deeper into recession, they're going to be bad for the stock market," Resler said. "The stock market is forward looking, so it has to be able to comfortably see the end of this or at least have the belief the end is in sight [before it recovers]."
Resler added that discretionary purchase-centered companies will be the hardest hit, while consumer staples are least likely to see the brunt.
"People aren't going to give up healthcare and eating - unless really, really strapped," Resler said.
Stimulus Not Enough?
To help fight the recession, the House on Wednesday passed an $819 billion tax-and-spending bill, which is one of the largest single stimulus packages in history, almost equal to the entire cost of annual federal spending under Congress' discretion. A parallel Senate measure, which is expected to come to a vote next week, is now valued at nearly $900 billion.
Either bill, if enacted, would push the federal debt toward levels not seen since the second World War and would extend the reach of the federal government across the U.S. economy by reshaping policy on energy, education, health care and social programs.
But some economists have said the stimulus might not be as effective as hoped.
"I don't think the fiscal stimulus is going to provide a very powerful lift, not like what I had hoped we might see," Resler said. "First, because to get a quick jolt to demand, you have to do something that puts money in the hands of people spending, whether it's consumers or businesses or government."
Resler said the government is planning to increase its investments, but it will take a long time for the purchases to take hold, and grants to states and local governments are largely to maintain current spending levels, not increase spending.
But NYU's White said he believes the stimulus eventually will work to revitalize the economy, with the unemployment rate peaking by late summer or early fall.
"You're trading off a bunch of things and nothing's going to be perfect ... but if it's worthwhile, it's better to get it done a little bit later than not at all," White said.
-By Shara Tibken, Dow Jones Newswires; 201-938-2168; shara.tibken@dowjones.com
(Jonathan Weisman, Greg Hitt and Naftali Bendavid of The Wall Street Journal and Brian Blackstone contributed to this report.)
(END) Dow Jones Newswires |
