Companies that make everything from fertilizer to flat screen TVs are handing out pink slips at a stinging pace, and it's likely that US job losses in this recession will be even worse than the already gloomy forecasts.
Economists have been ratcheting up their numbers as the economic data continues to weaken. At the same time, companies have been announcing layoffs by the tens of thousands.
On Tuesday, Japan's Sony joined the ranks of major international job-cutters, saying it would cut 16,000 positions. It also plans to trim investment and pull out of businesses in an effort to save more than $1 billion a year.
Over the last several days, similar announcements came from Dow Chemical, 3M, AT&T, Dupont and Danaher. Even those that aren't laying off have cut back on hiring. In an announcement warning about weaker earnings, Texas Instruments said it was suspending its hiring efforts.
Despite the promise of a massive federal stimulus program early next year, economists say such a program will do little to halt immediate losses in the job market. An exacerbating factor is the auto industry, which is likely to generate tens of thousands of more job losses in the next couple of months regardless of a Detroit bailout.
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"I think, given the financial pressures and given that sales are at 10 million [vehicles], and not seemingly improving any time soon, we could see instead of 10,000 or 15,000 jobs a month, we could see losses of 30,000 or 40,000 or even higher in the next few months," said Mark Zandi, chief economist at Moody's Economy.com. Zandi, who testified last week before Congress on the auto bailout, said those losses include industry-related jobs, not just auto workers.
Zandi, like other economists, increased his expectations for the unemployment rate. "I think it'll be between 8.5 and 9 percent," he said. "It's worse than I envisaged." Zandi had expected a high of 8 percent, and he expects unemployment to peak in early 2010.
The November employment report, released Friday, revealed an unexpectedly steep loss of jobs—533,000 non-farm payrolls were lost in the month—and an unemployment rate of 6.7 percent, the largest drop since 1974 and the highest unemployment level since October 1993.
Sony (NYSE: sne) said it would cut its global workforce by 4 percent. Half of those employees are regular workers, and the other 8,000 contract staff. Sony's Korean rival Samsung has also said it would cut capital investment, and Japan's Panasonic pared its earnings outlook. The sharp pullback in consumer spending has battered the electronics sector and helped push U.S. retailer Circuit City into bankruptcy last month. Circuit City is shutting stores and laying off thousands, adding to retail job losses at what is usually a robust time of year for retail hiring.
Dow Chemical (NYSE: dow) Monday said it was slashing 5,000 full-time jobs, or 11 percent of its global staff, and an additional 6,000 contract workers, as it cuts 30 percent of its total production. 3M (NYSE: mmm) said it was cutting its outlook and reducing its workforce by 2 percent. Those follow recent announcements from Dupont, AT&T and Citigroup, to name just a few.
"We think December is going to be a really bad month, approaching 500,000 or 450,000. We're feeling like we'll get to 7 percent unemployment in December," said Stephen Stanley, chief economist at RBS Greenwich Capital.
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"We think the unemployment rate is going to get up to 8 percent. The reason we don't think it will go much higher is we think you are going to get a lot of discouraged workers. You're going to have people that just stop looking," he said.
Zandi said he thinks December's job losses may actually be lower than November's total of more than 500,000. "Four hundred thousand would be more consistent with unemployment claims," he said. "The 500,000 was a little surprising. One thing that would have juiced up the decline was the lack of seasonal hiring in retail, and it kind of overstated the weakness in the job market."
Infrastructure Program Helps—But Only So Much
President-elect Barack Obama clarified some of his ideas on fiscal stimulus in a radio address this past weekend, sparking a rally in stocks Monday. But economists do not expect those plans for the biggest infrastructure programs since the 1950s to have an impact on current job losses.
"The problem is nothing can help us from the near-term losses," said Diane Swonk, chief economist at Mesirow Financial. "The government can only do so much. They can't save the jobs that are being lost. What it really does most is ... help jobs in the construction sector, which is one of the hardest hit sectors."
Zandi agreed that the current job losses would not be stopped by a stimulus program, some of which will take months to implement after it's signed into law early in the year. In a recent report, Zandi said such a stimulus would limit the peak-to-trough decline in jobs to 3.5 million. With the stimulus, unemployment would fall back to nearly 5 percent by the end of 2012. Without it, unemployment would still be over 8 percent at that time.
"Job losses at state and local government would be mitigated. They would get help. Job losses in construction would be mitigated. I think it does help in terms of job creation," said Zandi.
Stanley said he isn't optimistic that infrastructure spending will make a big difference in terms of long-term jobs. "It could cushion the blow statistically, but I don't think it will speed the day that the recession ends," he said.
"I just don't think it's going to hit fast and have a big hit on the economy. It's not clear to me that the economic benefits are so long-term in nature. It takes a long time to filter into the economy," Stanley said. "If you get a paycheck from a temporary government project, you're to going to be careful about how you spend that money ... We think households are going to keep their conservative spending patterns."
He said the traditional jolt the economy gets from the actions manufacturers take to reduce their inventories are not apparent in this recession, but there could be an inventory swing in the first quarter because of the auto industry. "The typical garden-variety recession going back to the 50s and 60s and even early 80s was driven to a certain degree by inventory reductions when there was a screeching halt to production," he said.
"You could see a big production adjustment," as automakers reduce manufacturing in order to alleviate the glut of unsold inventory, he said. That would result in deeper layoffs by automakers. Historically, as inventories shrank, companies increased production and staff. But an economy less reliant on manufacturing and with better just-in-time inventory controls has changed that pattern.
"Auto industry sales are affecting the (jobs) numbers dramatically. It looks like they're going to get a bridge loan ... that'll buy them the time they need to get to the Obama Administration. Ultimately right now, we're trying to mitigate losses," Swonk said.
Swonk too has upped her expectations for peak unemployment to 8.6 percent from 8.2 percent by the end of 2009. "The layoffs are so severe, the fact that as the economy improves, you may be understaffed pretty quickly as well," she said.
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