Read Beyond Massive Job-Cuts Headlines: Labor Market Is Fine

Updated on
  • Job reductions in North America approach 81,000 since July
  • `Nothing is falling apart;' hit falls only on some industries

In the span of just 10 days, four major U.S. companies announced plans for a whopping 40,000 job cuts. And this quarter is the worst since the recession with 81,000 total.

But read beyond the headline numbers because hiring remains strong, and the U.S. government may report this week that unemployment remained at its lowest levels since 2008.

The juxtaposition of apparently contradictory data shows the divergence within corporate America as the third quarter draws to a close. While automakers and retailers enjoyed soaring profits, earnings at energy, industrial and materials companies were crushed by the rout in crude prices and a slowdown in emerging markets.

“We’re experiencing a bout of economic weakness that is hitting certain portions of the economy, but not everyone,” said Jonathan Golub, chief U.S. market strategist with RBC Capital Markets. “If you look at the jobs data, nothing is falling apart.”

The tally of job cuts announced since July 1 in North America -- including 5,000 at Caterpillar Inc., 2,000 at Halliburton Co., 30,000 at Hewlett-Packard Co. and 3,000 at Johnson Controls Inc. -- is the biggest number since 2009. It’s more than double the 32,000 reductions in the same period in 2014 and 36,000 in 2013, according to data compiled by Bloomberg from company statements and filings. Whole Foods Market Inc. said Monday it plans to eliminate 1,500 jobs to pare costs as discount rivals undercut prices. 

The number reflects the extend to which the drop in energy prices has trickled through the industry, from oilfield-service providers like Halliburton to big manufacturers such as Caterpillar, the world’s biggest maker of construction and mining machinery, that are dependent on demand from drillers.

It also tells the decline of a tech giant, Palo Alto, California-based Hewlett Packard, which is shrinking its workforce ahead of a split into two companies to compete with nimbler rivals. Johnson Controls is spinning off its automotive-interiors business to focus on its building-efficiency and batteries units.

Older technology companies such as Hewlett-Packard behave like large industrial companies, Golub said. Other mass job cuts unveiled last week -- 1,100 jobs cuts at Groupon Inc. and 1,200 at Marvell Technology Group Ltd. -- are related to problems specific to each company and don’t fit in a particular trend, he said.

“A fifth of the market looks like it’s in recession while the other 80 percent is perfectly normal or even strong,” he said.

Earnings at Standard & Poor’s 500 Index members are predicted to drop 6.5 percent in the third quarter, chiefly because of the collapse in profitability in the energy industry. Excluding energy, analysts see profit rising 0.5 percent gain, according to estimates compiled by Bloomberg.

Bright spots include automakers and their suppliers, whose earnings probably jumped 30 percent, and retailers, with 14 percent growth, the predictions show.

Meanwhile, earnings per share probably dropped by 74 percent at Houston-based Halliburton; by 53 percent at Peoria, Illinois-based Caterpillar; by 9 percent at Hewlett-Packard and by 3 percent at Johnson Controls, based on the projections.

The energy and manufacturing slowdown will temper the U.S. recovery without derailing it, said Jay Bryson, global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. The economy is forecast to expand 2.5 percent this year, the highest rate since 2010, and accelerate to 2.7 percent in 2016, according to analysts’ estimates compiled by Bloomberg.

The U.S. job market also will continue to slowly improve, with unemployment projected to fall to 4.9 percent at the end of next year for the first reading of less than 5 percent since February 2008. The Labor Department probably will say Friday that September’s rate was unchanged at 5.1 percent.

“There’s really been no significant employment deceleration in our economy,” Bryson said.