The layoff brigade continued today, as Delphi Automotive Systems(DPH Quote - Cramer on DPH - Stock Picks) announced it plans to cut 11,500 jobs, or 5% of its workforce. Chances are, tomorrow will bring more participants.
Unemployment figures remain at historically low levels -- 4.2% being the most recent count. But the daily deluge of job-cutting announcements -- which are often accompanied by warnings of earnings shortfalls -- are seriously denting the confidence of investors, not to mention employees. What are the consequences of these cuts for the market and the economy? Will the unemployment rate get jacked up? How bad is it, relatively speaking?
To find the answers, for today's Daily Interview, we spoke with Ron Bird, chief economist of the
Employment Policy Foundation, a nonpartisan think tank funded by
Fortune 1000 companies. While Bird says the layoffs are painful and real, he says that companies are continuing to create hundreds of thousands of new jobs. For a less dire outlook on the job situation, read on.
TSC: All of these pending layoffs are certainly wreaking havoc on stocks and consumer confidence. Do you see the unemployment levels climbing much higher than the current 4.2%? Bird: Layoffs are real are a cause for concern, there's no question. But they need to be balanced against a careful look at the fundamental strength of the economy overall. We are not in a gloom-and-doom situation as of yet.
We've been hearing about layoff announcements for months now, yet the unemployment rate has stayed at near-record low levels. The layoff announcements may be more of a dire appearance of growing unemployment than a reality. Layoff announcements do not necessarily translate in every case into actual layoffs, nor do actual layoffs translate into unemployment.
Why? Some layoffs don't end up occurring, or they occur at a smaller level, or they end up being only temporary, especially in the manufacturing sector. In some cases, companies will even transfer those initially being laid off to other jobs. Meanwhile, new jobs continue to be created because big organizations are always responding to market conditions, even in a downturn. New jobs outside the manufacturing sector, particularly for skilled workers, are still being created this year.
While last year was a boom year, millions of people were laid off. In fact, 14.2 million people were cut from payrolls last year, but employers created 15.9 million new jobs, for a net gain of 1.7 million additional positions. Total jobs are at the highest in American history. In fact, if you compare the number of layoff intentions announced in November and December to the actual
Bureau of Labor Statistics layoff figures for January and February, they do not match.
The danger is that these layoffs, whether they materialize or not, are affecting people's spending. As each layoff announcement is made, it damages consumers' attitudes and confidence about the job market and spending. I am particularly worried about how these potentially pending layoffs are not being put into the proper overall employment perspective.
TSC: How does today's unemployment figure compare to recessionary periods? Bird: The unemployment numbers right now are much smaller than in any recession period. In 1983, which was a bad recession year, the unemployment rate was 10.4%. The unemployment rate in the last recession of 1991 was at 6.6%. The following year it was 7.4%. We are nowhere in that range.
The number of people unemployed for the last several months has basically stayed at 5.9 million people, or 4.2% out of a total workforce of 140 million people. Consider, as well, that the median duration of unemployment has remained six weeks for the past three or four years. If you want to look at how this compares to the last recession period of 1992, the median duration of unemployment was almost nine weeks.
So, we are not seeing the rate or the duration of unemployment go up drastically compared to past recession times.
TSC: What do the current employment figures say about the economy? Bird: The fundamental facts about the U.S. economy are still strong. Certainly, things are slowing, particularly in the manufacturing sector, which is grappling with an inventory adjustment. I will admit that these layoffs are giving off mixed signals and economic growth is slowing, blurring the vision for where the economy is going. There is still time for policy action to make a difference before we go into a recession.
But if consumers respond to each individual piece of layoff news, a continued downward economy or even a recession could become a self-fulfilling prophecy. That's why it's particularly important for the
Fed to keep the economy ahead of the curve.
Lee Barney
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