Layoffs Cut Deeper Into Economy
Tuesday, January 27, 2009
The nation's employers, including some of its largest and most sturdy, announced plans yesterday to slash more than 55,000 jobs, a staggering one-day toll that highlighted how quickly layoffs are accelerating and how widely misery is spreading throughout the labor market.
The cuts extended to companies that were once considered bright spots in the U.S. economy. Construction equipment maker Caterpillar, whose business last year was bolstered by strong exports, said it would cut 20,000 jobs. Pfizer, one of the giants of a health-care sector that had until recently seemed immune from the downturn, said it would cut 8,000.
In all, 22 of the 30 companies that are part of the Dow Jones industrial average have announced job cuts since the economy took a nosedive in October. Analysts say they've been surprised by just how quickly those cuts have added up. The number of people receiving unemployment insurance benefits now stands at 4.6 million, the highest level since 1982.
"These are not just numbers on a page," President Obama told reporters at the White House yesterday, as he urged Congress to pass his economic stimulus package. "These are working men and women whose lives have been disrupted. We owe it to each of them, and to every single American, to act with a sense of urgency and common purpose."
The unemployment rate, at 7.2 percent nationwide as of December, has already reached 10 percent in some states, including Michigan and Rhode Island, the hardest hit. The nation has experienced the steepest rise in unemployment since the recession of the early 1980s, a recent analysis by the Economic Policy Institute found.
The job cuts announced yesterday "are the predictable consequence of a quickly unraveling economy affecting all sectors and segments of the workforce," said Lawrence Mishel, the president of EPI. "Unfortunately, the rise in unemployment we've already had may only be halfway to where we're heading."
Construction firms, banks and automakers have been eliminating jobs for more than a year. But now positions are being cut across the economy. Those cuts signal that even financially strong companies are bracing for what they think will be a prolonged economic downturn.
Companies announcing job cuts yesterday included Sprint Nextel, the wireless provider, which cut 8,000; Home Depot, which cut 7,000; General Motors, which laid off 2,000; and Texas Instruments, which cut 3,400.
Caterpillar, viewed as a stalwart of American industry, cut more jobs than any other company yesterday. It said the economy has slowed so much in China and other once fast-growing nations that there have been fewer buyers for the company's bulldozers, graders and other heavy equipment.
At Pfizer, the announcement of job cuts came after the firm said it would acquire Wyeth. While job cuts are typical after mergers, the recession played a role as well, analysts said. Drugmakers are facing increased regulation and competition from cheaper generics. Prescription drug spending in 2007 fell to its lowest growth rate in more than 30 years, according to a study published last month by research firm IMS Health.
Sprint, the third-largest wireless provider, has announced three rounds of layoffs in the past two years as it continues to lose ground to its competitors. While analysts said the job cuts reflect problems specific to Sprint, they said the drop in consumer spending and rising unemployment has hurt the telecom industry as well. Wireless subscriber growth in the United States is slowing, said Stanford Group analyst Michael Nelson. And consumers are trading down to cheaper monthly plans and being more careful not to go over their allotted minutes.
Workers in Europe were hit by their own wave of corporate layoffs yesterday. Dutch financial firm ING said it was cutting 7,000 jobs. Steelmaker Corus said it was eliminating 3,500 jobs worldwide. Royal Philips Electronics, Europe's largest maker of televisions, said it was letting go 6,000 workers after reporting a $1.9 billion loss for the fourth quarter of 2008, its first quarterly loss in five years.
"The development of our quarterly results reflects the unprecedented speed and ferocity with which the economy softened in 2008," chief executive Gerard Kleisterlee said in a statement.
John Challenger, chief executive of Challenger, Gray & Christmas, an outplacement consulting firm, called the flurry of layoff announcements "a perverse sign of the global economy."
He said he was also disturbed by signs that well-run companies that didn't overhire in good times are now being forced to trim their workforces in bad ones. Such companies "learned their lessons from the last period of expansion in '90s," he said. "The concern is they're cutting into muscle . . . and may have damaged their ability to recover when things start to happen."
While layoffs by big names attracted the most attention yesterday, workers at thousands of smaller firms are losing their jobs as well.
Small companies with 1 to 49 employees shed 281,000 jobs in December, according to a report released this month by payroll services firm Automatic Data Processing. Medium-size firms with 50 to 499 employees cut 321,000. Large companies with more than 499 workers lost 91,000.
Many economists had forecast that a government stimulus package would help revive the economy in the second half of the year. But as the recession deepens, some wonder whether its impact will be felt as early as they had expected.
"If the stimulus gets out there, that's a chunk of money that will probably help stimulate the economy, but we're not as sure of it as we were a few months ago. Things fell apart in the fourth quarter much faster than I've ever seen it happen before," said David Wyss, chief economist for Standard & Poor's.
For the next six months, many economists do not expect the pace of layoff announcements to let up much.
"There is nothing in the economic tea leaves that suggest someone is going to be hiring. This is a broad-based economic slump. From pharma to industrial to housing to telecommunications, every aspect of this economy is in a free-fall," said Richard Yamarone, director of economic research for Argus Research in New York. "There is no safe haven."
Staff researcher Robert E. Thomason contributed to this report.