Sharp Rise in Layoffs -- Tied Directly to Lower Oil Prices

124668669Friday’s unemployment and payrolls report from the U.S. Labor Department is highly anticipated, but we are starting to see a dark side of the oil economy when it comes to layoffs. The Challenger, Gray & Christmas January 2015 Job Cut Report is showing that job cut announcements have surged to their highest level in two years. As falling oil prices have sent energy companies on a cost management mission, 40% of the layoffs are said to be directly related to oil prices.

This may, at least on the surface, seem like it will conflict with the recent declines in weekly jobless claims.

The Challenger, Gray & Christmas Job Cut Report signaled that U.S.-based employers have announced plans to shed 53,041 jobs from their payrolls at the start of 2015. Again, 40% of these are said to be directly related to oil prices.

Another issue is that the January total was up 63% from the 32,640 planned layoffs announced in December. It was also 18% higher than the 45,107 layoffs in the same month a year ago.

What the public needs to understand is that January of 2015 saw the highest monthly layoffs since the 55,356 layoffs back in February of 2013. It was also the highest January reading since the 53,486 in 2012.

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The January total is 42% higher than the job cuts announced by the energy industry in all of 2014. Falling oil prices also contributed to job cuts in the industrial goods manufacturing sector, where companies supplying products and materials to oil drillers were forced to shutter operations. These firms announced 4,859 job cuts in January, of which 1,600 (33%) were due to low oil prices.

Unfortunately, this is far from a one-off event. Thursday’s report included a quote that is a warning for the energy sector from John A. Challenger:

We may see oil-related job cuts extend well beyond those industries directly involved with exploration and extraction. The economies throughout the northern United States that have been thriving as a result of the oil boom could experience a steep decline in employment across all sectors, including retail, construction, food service and entertainment. On the flip side, there are a number of industries throughout the country that will benefit from falling energy prices. Delta already reported significant savings tied to lower fuel costs. The airline is also seeing more travelers as lower ticket prices are spurring purchases from travelers, who have more money in their wallets. Trucking companies, plastics manufacturers and paint makers are also seeing bottom lines improve.

There is at least some good news here for the nation. Challenger also signaled that the net result of falling oil prices could ultimately prove to be positive for the economy as a whole. Industry cost saving is one issue. Also, more discretionary spending will trickle over into dining out, travel, entertainment, higher SUV sales and on.

The retail sector is supposed to benefit as well, but Thursday’s report showed that the retail sector posted the second largest job cut total in January, after the energy sector with 6,699 layoffs, mostly tied to the “perennially struggling” J.C. Penney and teen fashion retailer Wet Seal. All in all, retail job cuts were still shown to be lower than the same month a year ago.

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24/7 Wall St. discussed the local impact that was already being felt in Houston and in Texas in January. That report comes with a sharp reminder for those who think the impact is overall good. It is not just that oil jobs are much higher paying than others (restaurants, travel, retail) — one energy job has the purchasing power of three non-energy jobs in Houston.

Layoffs Jan 2015

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