Drastic layoffs announced by
among others suggest that corporate America still sees few signs of an economic recovery, although it doesn't mean one isn't coming.
"When businesses lose all hope, that's almost always when the economy turns," said Joel Naroff, president and chief economist at Naroff Economic Advisors. "Layoffs are often announced well after they should have been, and companies tend to make these decisions at the bottom of the cycle."
Naroff said he expects to see continued layoffs through the first half of next year, but at a lower level than this year.
A slew of companies have announced large job cuts this week. Insurance giant Aetna said Thursday morning that it would reduce its workforce by 6,000 employees, or 16%, in an effort to improve operating performance and increase competitiveness. The firm will record a fourth-quarter charge of about $125 million, related to severance and associated expenses.
said it would cut an additional 7,000 jobs from its workforce by the middle of 2002. The company plans to take a fourth-quarter charge of $400 million to $600 million.
American Express said on Wednesday it would cut up to 6,500 positions and take as much as $280 million in charges as the effects of Sept. 11 dented corporate spending and travel. The company has cut 15% of its workforce since the beginning of the year.
Chip-equipment maker Applied Materials added to the bad news, saying it will slash 1,700 jobs, bringing total headcount reductions this year to 7,100, or 32% of its workforce. In addition, publishing giant
said it would cut 5% of its workforce.
Most companies are usually reluctant to let go of workers only to have to rehire them when business conditions improve. The fact that companies continue to eliminate thousands of employees suggests they don't see a turnaround any time soon.
"These companies don't see a recovery, but then they didn't predict the downturn either. Their forecasting ability is right up there with our profession: economists," quipped Paul Kasriel, chief U.S. economist at Northern Trust Co.
Still, Chris Wolf, equity analyst at J.P. Morgan, said the layoff announcements are not a good sign for the overall economy over the next six months.
"Companies are peering over the edge and saying maybe the first and second quarters aren't going to be as good as we thought. There's a subtle message that we're going to see a slow and moderate recovery and that there may even be more layoffs next year," he said.
Joe Liro, economist at Stone McCarthy, offered that the timing of these recent announcements is also disconcerting.
"In the past, companies have tried not to announce layoffs two weeks before Christmas," he said. "It seems to suggest there's going to be some pretty grim news in the fourth quarter, which is forcing people's hands."
Liro said earnings in general are going to be "abysmal" over the next few quarters. First Call is looking for a decline of 22% in the fourth quarter and a 15% drop in the first.
James Glassman, senior economist at J.P. Morgan, said businesses are going through "tremendous convulsions" right now, which is forcing them to get rid of a lot of experience and talent. But he noted that many of these layoffs occur over time and might not be implemented in their entirety if the economy does in fact turn around.
Besides, economists note, if and when things do improve, some companies may not need to rehire significantly, as many industries that were booming during the bubble years became bloated with personnel and will need to unwind for a while longer.
Companies announced 181,412 job cuts in November, according to Challenger, Gray & Christmas. That more than quadrupled the 44,152 recorded in the same month last year. Still, layoffs were down 25% from October's 242,192.
Meanwhile, the Labor Department reported the largest drop in nine years in initial jobless claims last week. First-time claims fell 86,000 to 394,000, while continuing claims rose 36,000 to 3.66 million.
"Job cuts may temper the recovery, but the economy always turns before the job market does," Glassman said.