Financial markets have been reeling as investors grow more concerned about the economy: An S&P downgrade of the full faith and credit of the United States, dismal GDP data, and ongoing weak employment data trends are just some of the issues contributing to the recent turmoil. What has so far received very little attention in 2011 are the incidents of corporate layoff announcements, especially this summer.
The announcements are almost always tied to restructuring of companies, but you can’t have that many big companies simultaneously hiding behind this excuse. What is obvious as a sore thumb is that the weak economy is continuing to hurt business fundamentals, forcing companies to pare down their head counts. Economists also know that there is a difference between furloughs and layoffs. Layoffs generally imply that businesses are anticipating a longer period of slowness. When you see this many layoffs at this many companies at once, the obvious answer is that a system wide weakness is not just present — it is building.
This trend comes at a time when corporate balance sheets are stronger than ever, with many buying back stock and increasing dividends. Interest rates are close to record lows again. The gridlock over the debt ceiling and budget deficits further motivated companies to sit back and not hire. The growing sense is that the new round of layoffs at the major companies may be followed by more layoffs at rival companies.
How long can that last if the economy keeps sliding? From Borders to Research In Motion, to Cisco, pharmaceutical companies, banks, and Wall Street firms — all are getting pushed out the door. Meanwhile, economic indicators are getting worse rather than better. If the numbers get any softer, don’t be surprised by more layoff announcements. At a minimum, this will keep the larger corporate employers from having to make new hires.
The Layoff Kings of 2011
Borders Group is now bankrupt and the last of the workers are solely conducting store-closure sales. All stores were being closed, and more than 10,000 workers are wondering if they can get a job at a library or another book store. While particularly in Borders’ case, the shift to digital may be partly to blame, along with with poor management, but the economy is certainly also playing its part in curbing consumer purchases.
Boston Scientific Inc. (NYSE: BSX) announced plans in July to trim an additional 5% to 6% of its workforce. This puts the layoffs between 1,200 to 1,400 employees through the end of 2013. The aim is to cut $225 million to $275 million from the yearly operating costs. Sadly, this is at the same time the company is expanding its China workforce.
Cisco Systems Inc. (NASDAQ: CSCO) has recently announced it would lay off 6,500 employees, or 9% of its full-time workforce. The company aims to trim about $1 billion from its operating costs. But some question whether this is enough, so this number could increase. Consequently, news outlets have claimed that as many as 10,000 layoffs will be announced. This “rebalance” is going to be somewhat system wide and affect many management positions, including about 2,100 who accepted early retirement packages.
Delta Air Lines Inc. (NYSE: DAL) is not imminently sending its workers home packing, but it announced in late July that about 2,000 workers — out of its more than 80,000 workers — have accepted voluntary buyouts as the carrier trims flights. Whether the latest drop in fuel matters or not is up in the air (no pun intended).
Gannett Co. (NYSE: GCI), in its most recent round of layoffs, announced earlier this summer another 700 employees will lose their jobs. The move will trim another 2% of its nearly 22,000 workforce. Gannet’s more than 80 community and other newspaper units have been affected by the advertising community’s environment slowness. The big problem in media operations is that the trajectory remains one of decline.
Goldman Sachs Group Inc. (NYSE: GS) left the door open to changes, but said in July it could cut roughly 1,000 jobs. The aim is to trim about $1.2 billion from operating costs. If you just use the headcount and the implied savings, it comes to about $120,000 per worker per year. Goldman’s headcount was close to 35,500 in its most recent quarter.
HSBC Holdings plc (NYSE: HBC) has exited retail operations in Poland and Russia, as well as three insurance operations. It also sold 195 nonstrategic branches (mostly in New York). The aim is to achieve some $2.5 billion to $3.5 billion of sustainable cost savings by 2013 through layoffs. HSBC began restructurings in Latin America, United States, United Kingdom, France and the Middle East, aiming to reduce its headcount by around 5,000. The total reported job cuts was actually put at 30,000 over the next 3 years. HSBC’s global headcount is about 295,000.
Lockheed Martin Corporation (NYSE: LMT) announced in June that of the 28,000 employees in its Aeronautics business unit it was shedding about 1,500 workers to improve affordability and to increase operational efficiency. Many workers are being offered voluntary buyout packages. Lockheed’s total headcount at the time was about 126,000.
Merck & Co. (NYSE: MRK) most recently cut 12,000 to 13,000 jobs following the merger with Schering-Plough. The workforce is close to 91,000 after previous layoffs, but even as the company is firing, it is also hiring elsewhere, lessening the blow. The new cuts aim to trim $1.3 billion to $1.5 billion in operating costs as Merck tries to be more nimble to compete globally.
Research in Motion Ltd. (NASDAQ: RIMM) has been under siege and, frankly, the viability of the BlackBerry is becoming an issue. This company’s layoffs you might blame on Apple’s iPhone or Google’s Android, but in the end, this might just be one more business buried by Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) that turns out to be an economic event. RIM’s “headcount reduction” will amount to 2,000 of about 19,000 of its workforce. What is sad is that it might be very easy to assume that more cuts will be coming soon if the market share trends continue in the same manner.
Sears Holding Corporation (NASDAQ: SHLD) announced the layoffs of about 700 workers in the higher-ticket appliances department of the Kmart stores in June. Some of those workers might have been transferred to other locations, and other employees were trained to answer questions from customers about the appliances, according to Sears. With more than 300,000 workers, 700 might not seem like much. The problem is that it is just one more “death of a salesman” report of a company that has lost its greatness and is in decline.
Then there is the next wave …
Credit Suisse Group (NYSE: CS) and UBS AG (NYSE: UBS) are both in the midst of layoffs. The final numbers are still outstanding and will include wealth management, IT, and investment banking positions if all of the reports remain accurate. The tally is expected to be between 5,000 to 7,000 layoffs between the two Swiss banks. Some of the cuts will be international, but the firms have not left the prized Wall St. jobs out of the hangman. Royal Bank of Scotland Group plc (NYSE: RBS) also announced thousands of cuts.
Morgan Stanley (NYSE: MS) was widely reported to be considering thousands of layoffs. So far, no official announcement has been made, but one has to question if it is just a matter of time with so many inside “sources” in multiple reports.
Express Scripts Inc. (NASDAQ: ESRX) is in the process of acquiring of Medco Health Solutions Inc. (NYSE: MHS) — if the merger is allowed. Express Scripts has more than 13,000 workers and Medco has over 23,000 workers. While the “efficiencies and synergies” were not outlined in detail, there is some obvious headcount overlap that exists at these two companies if they combine.
The data from Challenger, Gray & Christmas last week does very little to show that the end of layoffs is coming. While the report showed that there were fewer layoffs in the first 7 months of 2011 than the same period in 2010, the problem is it also showed an acceleration in job cuts. July alone was at a 16-month high with more than 66,000 announced cuts in the private sector. The report also noted that July was the third consecutive month of increased layoffs.
So far it has been local, state, and federal agencies that had led the layoff kings. Many Americans want to see more of that continue as government austerity measures are needed more and more. The problem is that if corporate layoffs are increasing then it will lead to just that many more able workers per available job opening. That doesn’t just drive up unemployment, it also allows companies to offer lower and lower salaries to prospective and even to existing workers who are afraid to be next ones out the door.
JON C. OGG
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