High-Profile Job Cuts Say Little About U.S. Labor Market OutlookCarlos Torres
Names attract attention. Sometimes the information behind the news doesn’t alter the big picture.
While workers at American Express Co., EBay Inc. and U.S. Steel Corp. have every reason to shudder at the announcements that their employers will be cutting hundreds, or even thousands, of jobs, those advisories rarely alter the overall outlook for the U.S. economy.
“With layoff announcements, you always want to take them with a grain of salt,” said Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Businesses can say one thing and do another down the road. It doesn’t shake our confidence.”
Staff reductions sometimes fail to materialize because business improves, or cuts are carried out through attrition or early retirement, or employees that are let go are based in other countries or find jobs elsewhere in the company. Unless the dismissals are validated by an increase in jobless claims, the announcements rarely mean the economy is in dire straits.
New York-based Amex, the biggest credit-card issuer by consumer spending, said on Jan. 21 that it would cut more than 4,000 positions this year after reporting a fourth-quarter profit that missed some analysts’ estimates.
Chief Financial Officer Jeff Campbell said on a conference call with analysts late Wednesday that headcount won’t decline by 4,000 because new jobs will be created elsewhere in the company.
On the same day, San Jose, California-based EBay said it’s cutting 7 percent of its workforce, or 2,400 positions. Its online trading business faces intense competition from Amazon.com Inc., and the drop in sales has been brought about by concern over its cyber attack in the first half of 2014 and algorithm changes by Google Inc. that have hurt search-related traffic, according to a report by Bloomberg Intelligence.
Those are company-specific issues that have little to do with economic growth.
These are “big layoffs from some pretty well-known consumer-facing companies and I think it does draw a lot of headlines,” said Sarah House, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. Data such as jobless claims “are more indicative of the broader economy, where we generally continue to see very low levels of layoffs.”
A report Thursday from the Labor Department showed jobless claims decreased by 10,000 to 307,000 in the week ended Jan. 17. While the reading was higher than the 300,000 median forecast of economists surveyed by Bloomberg, such low levels still point to a strengthening job market.
A level of about 300,000 for jobless claims has historically been consistent with monthly payroll gains of 250,000, so there’s an internal consistency with the numbers, said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York-based economic forecasting firm. “So the fact that a few big companies have announced some reasonably sizable layoffs pales in comparison to the overall picture of what’s going on,” he said.
Regarding the announcements, Shapiro said “I don’t think that it’s anything in particular to worry about.”
Just as some of the cuts are company-specific, others are related to particular industries. The bloodletting at banks that started during the 2008 financial crisis won’t let up this year, according to 83 percent of respondents to a quarterly Bloomberg Global Poll who said those firms will continue cutting jobs.
The reductions will affect firms around the world, 61 percent said, while 21 percent said most cuts will be in Europe and only 1 percent said they’d be concentrated in the U.S.
Commodity industries, including energy and metals, are other areas likely to suffer. A spokeswoman for Pittsburgh-based U.S. Steel confirmed Jan. 21 that the company was planning to cut 545 additional jobs at two U.S. plants as it was harmed by an influx of low-cost imports.
“It’s not too surprising that you’re seeing some layoffs, particularly in the oil side of the economy,” said Moody’s Sweet. “Prices have plunged, so they’re starting to respond.”
Sweet says just keep an eye on those jobless claims in order to get a read on the actual state of things.
With claims hovering around the 300,000 level, “we should be seeing 200,000-250,000 jobs created per month,” he said. “That’s more than enough to absorb the slack and keep the job market moving in the right direction.”
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