Wolf Richter: Job Cuts Pile Up

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street

Turning points in the vast US labor market rarely come with a big drumroll that no one can miss. Instead, they wedge themselves into the rosy scenario bit by bit, here and there, posing contradictions where none are expected. And today, we got one of those contradictions: unemployment claims v. job-cut announcements.

The number of people who applied for unemployment insurance during the week of March 20 to 26 rose by 11,000 to 276,000, the Labor Department reported today. While up, these initial claims are still near the low of 253,000 established on March 5, which had been the lowest level since the late 1960s!

So even at 276,000, initial unemployment claims are still very low by historical standards. Red flags go up when claims jump well above 300,000. Serious fretting begins when claims hit 400,000. That’s a sign that laid-off people can’t find new jobs and are filing for unemployment insurance to tide them over. It’s a sign that layoffs by one company can no longer be absorbed by other companies.

Companies have already started laying off people. The announcements and rumors bubble up on a daily basis. And today, the Challenger Job Cut Report confirms it in a chilling way.

In March, job cuts announced by the largest US-based companies soared 31.7% year-over-year to 48,207. The fourth month in a row of year-over-year increases. Up 40% from March 2014.

Job-cut announcements in the first quarter jumped to 184,920, up 32% from 2015, and up 52% from 2014.

These are not minor increases. And they only include the largest US-based companies that announce layoffs to the media. They do not include smaller companies that might be trimming their payrolls quietly.

In Q1, about 50,000 job-cut announcements, or 27% of the total, were “attributed to falling oil prices,” as the report put it. That includes companies such as manufacturers that supply the oil sector. Last year in Q1, “oil-related” job cuts had reached 47,610, or 34% of the total.

This shows that the oil sector is still shedding jobs manically, but other sectors have now jumped into the fray in significant numbers. As the report put it: This “upward trend outside of the energy sector is somewhat worrisome.”

Beyond oil is the larger energy sector, which includes coal that is careening company by company toward bankruptcy, but it doesn’t include industries that supply it. In energy, job cuts reached 52,901 in Q1, up from 37,811 last year.

Then there’s retail — brick-and-mortar retail which has been getting whacked by the shift to online retail in an environment of lackadaisical retail spending. And so the retail sector responded with 31,832 announced job cuts in Q1, up 41% from last year.

And job cuts in the computer sector in Q1 soared by 148% year-over-year to 17,000.

The hardest-hit state is Texas, with 60,350 job cuts in Q1, more than all the job cuts in the energy sector in the US, another sign that the oil bust is seeping into the broader Texas economy. This is no longer a blip, but a new reality [read…  Consumers in Texas Hit by “Negative Ripple Effects”].

Arkansas, with a population of only 3 million, is in second place with 16,200 job cuts in Q1. That hurts! California, with over 12 times the population of Arkansas, is in third place with 14,198 announced job cuts, which barely produces a ripple in the big state.

The fact that job cut announcements are rising – just the last two days, we’ve heard from Boeing laying off 8,000 and BlackRock 400 – is one of the early signs of a turning point in the labor market. With business revenues and earnings slumping, and with productivity down, companies are reacting, but they’re not panicking yet, at least not outside the energy sector. Outside the energy sector, they’ve taken out the scalpel and they’re carefully trimming here and there to bring expenses down.

But the energy sector is in panic mode. The entire sector is laying off. So a specialized engineer or oil field worker — very well paid when they still have jobs — is going to have a hard time finding an equivalent job. And this is hitting Texas particularly hard.

There is a fairly long delay, however, between announcement and actual layoffs. After the job-cut decision and the announcement, a company has to sort out who has to leave and what severance packages, if any, they get. If it is “voluntary” via “buyouts,” people are given time to decide. The to-be-laid off people often don’t know for months about their fate. Others know but hang on to their jobs for months.

So the impact of the current job-cut announcements will be felt later. For now, companies outside the energy sector have been picking up laid-off workers fairly rapidly, and the initial unemployment claims remain low. But as more companies start laying off, fewer continue to hire and fewer of the laid-off people get hired right away. This is when the currently tepid signs of deterioration in the labor market heat up.

And that crucial link between business sales and jobs? It’s becoming a real party pooper. Read…  And this is When the Jobs “Recovery” Goes Kaboom

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  1. Aaron Layman Properties

    Our local paper certainly has their head in the sand on this one. A “reporter” recently tried to use lagged census data to make the case that our local population growth was still humming along. Apparently a degree at Columbia isn’t worth much these days because this supposed demographer failed to see the link between jobs and population growth. I guess all of the people moving to Houston are living with relatives while they try to find a decent paying job.
    The GHP (Greater Houston Partnership) still thinks we’re going to add 22,000 jobs this year even though Texas has amassed more than half of 2015’s job cuts in just the first quarter of 2016…

  2. Northeaster

    Complete media blackout for mass firings at IBM.

    Roughly 20K American jobs cut and not a peep from the media or State AG’s over failure to report under The WARN Act. Oh that’s right, IBM claims that it’s a “trade secret” to disclose such. No worries though, those buybacks appear to be doing wonders according to Form-4 filings.

    1. Louis

      Trump didn’t fire anybody so of course the media hasn’t noticed all the other firings.

  3. afisher

    There is a site: DailyJobCuts.com that provides a list of job cuts as announced. I usually find that there is a lack of due diligence, but it does provide a snapshot of announcements.

  4. apber

    According to Shadowstats, true unemployment is 23%, trending upward. But according to the Establishment, we are in a significant recovery. Wake me up when 50% of the 15-54 years old population is not working. The ensuing “civil unrest” and martial law will be happening in real time. Make sure to pass the popcorn.

    1. susan the other

      Except there won’t be any popcorn left – even the EU is now using fudged unemployment stats by not including those who are no longer in the labor population because they have dropped out due to discouragement. So their 10% is probably also closer to 23% as well. (France24 last nite). Sounds like manufactured unemployment across the western world. Etc. Whence come obnoxious words like ‘disemployment’. Wolf’s building a case for fiscal stimulation of economies – but Wolf is no environmentalist. You never read Wolf saying we could do a new world; new infra; etc.

    2. MyLessThanPrimeBeef

      The master of the manor is interested in

      How many serfs are in reserve to

      1. substitute, when sick or old, ok, make that unproductive serfs become, er, unavaialable
      2. fill new openings on the trireme when the Nature Conquering GDP Army expands
      3 keep current rowers in line by threatening with replacements

      The serfs, on the other hand, are interested in

      1. How many of us are starving.

      So, it’s natural the two parties look at different numbers.

      We would know all this, if we keep in mind that the field of economics was invented by manorial masters…so, the world has been looked at from that particular perspective.

  5. Fiver

    Apart from the serious reasons to doubt the veracity of all the headline data since the GFC, when it became undeniably evident on a broad scale that the entire Government and its relationship with all the other elements of the total system had been captured by money, the meaning of the data has also corroded badly.

    First off, how many people were effectively destroyed by that experience, and will never work again, or only in some more limited way? We know the labour participation rate is flagging a serious problem, we know young people (who must hate being called ‘millenials’) are at home in record numbers, not getting jobs they want or at all, and we know nobody can actually live on either the minimum wage or social assistance. We know trickle down has failed again, and will fail the next time as well.

    I so prefer ‘smart’ stimulus to ‘dumb’. Infrastructure spending, though, is not necessarily the smartest. Roads and bridge replacements or new turnpikes or even statues aimed only to meet some short-term traffic or political goal ? Or spending on fast trains, fast transit el-trains, major forest restoration, clean water plants, industrialized compost/soilmaking or any number of major initiatives? I mean ‘stimulus’ spending is almost by nature ‘dumb’ – due to the context which is to deliver a short kick to the economy in the hopes it will finally engage itself. We’ve seen a lot of kicks, and not much traction whatever once the immediate project spending is done.

    Even as the American economy ‘clunks along’ it is nevertheless still growing, as is the world, so at some point commodities are going to get seriously financialized again. If the Fed has called it quits on hikes and keeps interest rates lower for longer, yes, still longer – I can almost imagine at some point a tidal wave of currently ‘lost’ hot money pouring out of global accounts into dollars and into oil in an attempt to jump-start the national economy with a big-ass blast of inflation – and stocks. In other words, at some point all that money is going to break loose from its moorings and start chasing itself into the stratosphere, even as us closer-to-the-ground types grow terminally hoarse, and die.

    1. Fiver

      Allow me to correct an obvious error – the gushers of excess liquidity would exit dollars into oil, other commodities and even stocks. The point is we have been intently focused on deflation for nearly a decade, the world’s CB’s, banking system and financial market extraction have created immense quantities of money ready to do something more lucrative. All it would take is one major supplier disruption, for instance, and oil etc., could well go through the roof again even as many countries are already embarked on major stimulus.

      Always a good idea to keep the thought that there’s something called a ‘fighting the last war’ mindset, and we ought to be alert to other sources of potential grief.

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