Mass Firings Soar at Fastest Pace Since 2010; What's the Impact on Unemployment?

Thursday, October 25, 2012 12:38 PM

Mass Firings Soar at Fastest Pace Since 2010; What's the Impact on Unemployment?

In precisely the kind of news president Obama does not want heading into the election, Ford (F), Dow Chemical (DOW), DuPont (DD), and Advanced Micro Devices (AMD) all announced mass layoffs this past week as Firings Reach Highest Since 2010.

North American companies have announced plans to eliminate 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg. Firings total 158,100 so far this year, more than the 129,000 job cuts in the same period in 2011.

"Companies are saying, ‘Let's not build up inventories, let's be lean and mean until we know until we have a better idea of what 2013 is going to look like,'" said Janna Sampson, who helps manage more than $3 billion for Oakbrook Investments in Lisle, Illinois. "There is a fear now as companies see that the economic recovery is not picking up."

So far, out of 204 S&P 500 companies that have released third-quarter earnings, 120 have reported sales that trailed analysts' estimates, according to data compiled by Bloomberg.
More Cuts

Those results, similar to the S&P 500's second-quarter performance, signal employers may increase firings over the next two quarters, according to John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., a human resources consulting firm based in Chicago.

Sales misses are "a sure prescription for layoffs starting to heat up as companies take immediate action to show their shareholders how responsive they are," Challenger said yesterday by telephone.

Firing Details

• Ford is closing its first European car-assembly factories in 10 years
• AMD, the second-largest maker of processors for personal computers, said last week it will cut 15 percent of its staff, or about 1,665 jobs, after forecasting fourth-quarter sales that fell short of analysts' estimates.
• Dow Chemical will close 20 plants in the U.S. and abroad to eliminate about 2,400 jobs
• DuPont plans to trim 1,500 jobs after third-quarter profit trailed analysts' estimates
• Cummins Inc. (CMI), a Columbus, Indiana-based engine maker, said it expects to erase as many as 1,500 jobs by the end of 2012 and lowered its forecasts for sales and profit.
• Kimberly-Clark Corp. (KMB) said this week it plans to cut manufacturing and administrative operations as it exits the diaper business in western and central Europe
  
  What's the Impact on Unemployment?
  
  In isolation, one would expect the unemployment rate to rise. However, Obamacare is having some peculiar effects on number of hours part-timer can work, which in turn led to a spur in hiring.
  
  For details, please see Obama Slashes Four Hours Off Definition of "Full-Time" Employment.
  
  Seven Forces at Play

1. Obamacare reduced the number of hours part-timers can work, thus increasing the need for more workers.
2. Seasonal hiring may have been early this year because of Obamacare, skewing the latest job results. Thus part of the recent rise in hiring will likely be revised away
3. The global slowdown reduces the need for workers
4. To combat the contraction in earnings corporations are firing workers, thus the recent mass layoff announcements
5. Companies are also worried about the fiscal cliff and its effect on consumer purchases. The reality is a fiscal cliff is needed and will occur at some point anyway, but no one wants to address the budget now.
6. Forced Retirement
7. Disability Fraud

Once the Obamacare effect plays out (perhaps in a month, perhaps it already has), the net effect of the first five forces is for the unemployment rate to rise.

However, we still have the issue of "forced retirement" which I describe as people who want a job and need a job but are of retirement age and decide to collect Social Security just to have some money coming in.

Forced retirement causes a drop in participation rate, artificially lowering the unemployment rate. Disability Fraud does the same thing.

Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis


Mish's Global Economic Trend Analysis: Mass Firings Soar at Fastest Pace Since 2010; What's the Impact on Unemployment?