Increasing layoffs could spell trouble for economy

If you have been watching the news flow in the last month, you would certainly have the impression that there are an increasing number of large layoffs – Sam’s Club being a notable one.  Before January, the jobless claims numbers pointed to a weak but somewhat improving layoff picture. But, there has been an alarming uptick in jobless claims, even while hiring is weak (see last two jobless claims posts here and here).

Challenger Grey, which tracks this data, confirms this news.

Planned layoff announcements at major U.S. corporations increased 59% in January, reaching 71,482 from a nine-year low of 45,094 seen in December, according to the latest job-cut tally by Challenger Gray & Christmas.

Is this something seasonal – a one-off post Holiday retrenchment?  Let’s see going forward. At a minimum, we should take some comfort that we are coming off near decade low layoff announcements.

Meanwhile ADP has come out with data which confirms that the private sector continues to cut jobs. Their report says:

Nonfarm private employment decreased 22,000 from December 2009 to January 2010 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from November to December 2009 was revised by 23,000, from a decline of 84,000 to a decline of 61,000.

The January employment decline was the smallest since employment began falling in February of 2008.

Let’s not forget that looming state budget difficulties means cutbacks in state government payrolls too. So it is unclear where the jobs growth is going to come from. But, this much is clear: if you think the federal government should create incentives for hiring, then the proposals coming out the White House are not going to put a dent in the unemployment problem. Harold Myerson of the Washington Post is on to this. He says:

The Democrats have shifted their focus, they tell us relentlessly, to jobs, jobs, jobs.

Would that they had.

In fact, the job proposals coming from the Obama administration and the Democratic Congress are far too small to seriously reduce the massive unemployment created when the financial and housing bubbles popped. Many Democratic leaders know that, and some want to do more.

The current proposals, I was told this past weekend by George Miller, chairman of the House Education and Labor Committee and probably Speaker Nancy Pelosi’s most trusted counselor, "are not adequate to the scope of the problem. You still have a big gap between the resources we’re offering and where we need to be. Clearly, more has to be done."

The $100 billion stimulus President Obama put forth in his budget is almost laughably smaller than last year’s $787 billion package, which most economists credit with saving or creating 1.5 million to 2 million jobs. Obama still supports some aid to state and local governments and infrastructure projects, but his main emphasis is on programs that would enable small businesses to increase hiring. These include a tax credit for new hires, eliminating capital gains taxes for their new investments, and redirecting TARP funds to community banks to lend to small enterprises.

As for upcoming data which will give us a read on whether these measures are going to make the grade, I see this Friday’s employment situation summary as less significant than the weekly jobless claims number.  ADP has already told us we were still losing jobs in January and Challenger Grey told us there was a major uptick in layoffs.  The question at this juncture in the cycle is whether this uptick continues.  If it does, it will surely spell trouble for the U.S. economy , and – given the huge run-up in stocks, I suspect – it will be a problem for the stock market as well.

Update: I forgot to mention the huge benchmark revisions expected in Friday’s employment situation report. This is the real piece of market-moving news in this month’s report. Stay tuned.

  1. Matt Stiles says

    Hey Ed,

    What do you think of Horowitz’ article at NBR yesterday, “you can’t count what you can’t see”?

    1. Edward Harrison says

      Stiles, this whole thing about stimulus ‘saving’ jobs is the wrong terminology. That isn’t the language I ever use. I think it’s a stretch to say a specific government programme saved x number of jobs.

      What you can say is they have added x number of government jobs. You can also say is that the government stimulus added x percent to real growth, something David Rosenberg did in his daily outlook today.

      Without stimulus, we would still be in recession and things today would look much, much worse. There’s little dispute in that. The question is whether we are putting off the inevitable. I say we are if stimulus is just an excuse to re-create the asset-based economy which led us to the brink of collapse. And that is what is happening.

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