Why This Round Of Layoffs Won't Derail The Recoveryby
This was the wrong sort of turkey. On the first day back after the long Thanksgiving weekend, almost 1,500 hourly workers at the Connecticut jet-engine plants of United Technologies' Pratt & Whitney Div. received an unwelcome present: layoff notices. On the same day, aluminum giant Reynolds Metals Co. offered early retirement to about 700 salaried employees in a move to cut costs, and American Airlines Inc. permanently eliminated more than 500 management jobs.
Just like last year, Corporate America is greeting the holiday season with a spate of job-trimming and cost-cutting. From insurance companies to computer makers, corporations are slicing their payrolls to make 1993 a better year for profits (table). General Motors Corp., for example, will pare 8,000 white-collar positions over the next year, and Boeing Co. is cutting production and chopping 2,500 jobs. Once again, economists and politicians are worrying that the reality of tens of thousands of layoffs--and the fear of more--will drive the economy back into the doldrums.
OLD NEWS. But this time around, those scary announcements won't knock the recovery off stride. In the past few months, the economy has edged onto solid ground: Third-quarter growth hit an unexpected 3.9%, real incomes rose in October (chart), and manufacturing orders are up. Retailers are reporting that Christmas shoppers are willing to crack open their wallets a bit more this year.
What's more, many of the recent announcements aren't new cuts. Instead, they reflect long-term downsizing plans made public months ago. Chevron Corp., for example, recently announced it was going to slice 1,000 positions from its San Francisco headquarters. While the exact details were a surprise, the cuts were not, since Chevron committed itself in January to a major restructuring in response to sluggish energy markets.
While news of job cuts by big companies gets big publicity, less attention is paid to the steady stream of hiring in smaller businesses. Take the computer manufacturing industry, which has lost 18,000 jobs over the past year, including the well-publicized bloodletting at IBM, Digital Equipment Corp., and others. But over the same period, software and other computer services companies have added 26,000 jobs. Even in New England, many skilled workers laid off from DEC, Data General, and Wang Laboratories have found jobs with smaller businesses in software, telecommunications, and other areas. A new survey from the Massachusetts Software Council says software companies intend to boost their Massachusetts employment by 17% over the next year.
And you would never know from the news that more people are working in financial services this year than last. Insurance companies such as Travelers Corp. are cutting their payrolls sharply to boost efficiency, and banks are still slimming down. But a solid increase in securities-industry employment, driven by near-record profits on Wall Street, has more than made up those job losses.
Sometimes, the same company doing the firing is doing the hiring. American Airlines is laying off managers, but it will add more pilots, flight attendants, and mechanics next year as it takes delivery of new airplanes. As a result, the company's head count of 97,000 is expected to rise in 1993. Polaroid Corp., too, plans to take on new people in fast-growing parts of the company such as medical imaging, even as it sheds about 300 jobs through an early retirement program in its photographic business.
FARMED OUT. Many of the staff jobs cut by corporations don't disappear--they're shifted outside the company to professional services outfits. Consequently, employment at management consulting firms is up. McKinsey & Co., for example, expects to grow in the U.S. by 5% this year. "Clients have been outsourcing policy-making and consulting services that used to be done internally," says Terry Williams, McKinsey's recruitment director.
Right now, the biggest drag on the economy is layoffs at defense contractors. Over the past year alone, the major defense-related industries have shed 140,000 manufacturing jobs, and there are likely more to come.
Still, economists expect a rebounding economy to generate a million or more jobs over the next year, enough to absorb the job losses at defense contractors and problem companies such as GM. That means that while the latest layoffs may slow the rebound, they're not about to bring it to a dead stop.