By Joseph Weber Even as the revived economy creates hundreds of thousands of jobs in 2004, more than 80,000 people are still being put out of work each month across the U.S. "There are always layoffs," says Rick Kaglic, a senior business economist with the Federal Reserve Bank of Chicago. "Jobs are being created and jobs are being destroyed every day."
No sector is ever immune to downsizings, economists say. And the latest layoff announcements certainly cut a wide swath, from Tribune Co. (TRB), whose newspapers in places including Chicago and Los Angeles have been feeling the pinch of slack advertising, to appliance-maker Maytag (MYG), which is on a cost-cutting binge. Despite Pulitzer Prize-winning journalism at its Los Angeles Times unit, Tribune plans to trim more than 200 jobs, while Maytag on June 4 said it expects to cut about 1,100 salaried positions, as appliance sales come under pressure.
GLOOMY PICTURE? However, as the latest downsizing counts tallied by Chicago outplacement firm Challenger, Gray & Christmas show, some sectors are suffering more than others. Marked by constant churning and inroads by Wal-Mart (WMT) and other "big-box" competitors against mom-and-pop rivals, retailers topped the job-cutting roster in May, announcing the loss of some 10,868 positions, Challenger reported.
Next up was telecommunications, where 8,750 jobs were eliminated last month, many from Baby Bells and smaller telecoms that continue to work off the overcapacity they built up in flush times. Closely following were government/nonprofit outfits, industrial goods, and the financial areas, each of which eliminated more than 6,000 jobs. Altogether, companies announced 73,368 lost jobs in May, according to Challenger.
At first blush, that would seem to paint a gloomy picture of the economy's performance. May's 73,368 total is 6.3% higher than the total layoffs announced in May, 2003, Challenger reports. What's more, that's 1.6% more than the count for April, 2004. The increase marked the second consecutive monthly rise. And more distressing, the May tally was the first since December where the monthly total outpaced the year-earlier figure.
"IMPECCABLE" TIMING. The bigger picture, however, tells a larger story. The job reductions actually mask an economy that overall shows the most promise for growth since the boom of the late 1990s. Net of job losses, the U.S. has created an average of 238,000 jobs a month so far this year -- some 1.19 million in all. America is 1.28 million jobs shy of its March, 2001, peak of 132.5 million and, unless employment growth retrenches again, it should hit that benchmark again by Election Day, says Marc Zandi, chief economist at Economy.com, a West Chester (Pa.) consulting firm. "The timing of these guys [Washington policymakers] is impeccable," jokes Zandi.
The pace of job cuts, moreover, has slowed sharply. So far this year, employers have announced 408,392 lost jobs, a monthly average of 81,678, Challenger reports. That's far lower than the first five months of last year, when over a half-million jobs were trimmed. The monthly average early last year: 114,163.
Yes, some sectors will continue to shed jobs for the remainder of the year and maybe beyond. Economists point to textiles and apparel, where quotas are soon to be lifted on Chinese imports. Unless the next Presidential Administration extends the quotas beyond Jan. 1, U.S. jobs in the area will be "completely eviscerated," says Zandi. Even before the quotas are lifted, Chicago-based Sara Lee (SLE) is planning to lay off 3,825 workers worldwide in its apparel unit, including some 150 in its Winston-Salem (N.C.) headquarters, as it closes a Puerto Rico plant and four others around the world by yearend.
VULNERABLE SECTORS. Rising interest rates are likely to shrink demand in many spots, too, leading to job cuts. Housing and related areas, such as mortgage refinancing, will likely see lost positions, says Paul L. Kasriel, chief economist at Northern Trust. He believes cuts will reach deeper into white-goods producers such as Maytag. "Appliance makers may be making the same sort of announcements in the second half of this year because appliances are related to homebuilding," says Kasriel. "I'm a little surprised this hasn't really hit yet."
Several other sectors are vulnerable. If car sales slow amid rising interest rates, auto makers and related companies could downsize. Airline-equipment makers, which have been struggling with overcapacity for a couple years, are likely to scale back further. And parts of manufacturing, such as bulk chemicals, are showing financial weakness that could lead to job cutbacks, even as factory hiring overall is up. "Layoffs are now a permanent part of the fabric," says Challenger Chief Executive John A. Challenger.
The good news, of course, is for every job eliminated, the economy is creating more than one to replace it. Although Challenger counted over 73,000 job cuts in May, it also tallied announcements of at least 55,307 new jobs. And that doesn't take into account unannounced hiring that Challenger's trackers don't pick up. Indeed, the government reports that the economy is now adding some 238,000 jobs a month.
People who fall victim to layoffs would be hard-pressed to agree, but Challenger argues that "there's no question that the job market has improved." If there's any solace for those who've lost their jobs, it's that creative destruction sweeps through every area of the economy from time to time. Weber is the BusinessWeek's Chicago bureau chief