Parsing the June Layoffs

Checking in with John Challenger about the latest job cuts.
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(Author's note: Richard Posluszny contributed to this article).

This past week, I had

a chance to talk

with John Challenger of the employment tracking firm

Challenger, Gray and Christmas

(CGC). With the latest data on job cuts out this morning, we thought we'd follow up with John.

Publicly traded large firms laid off another 82,000 staffers in June, bringing the second-quarter total to 275,000 -- the highest three-month total in 10 quarters. (Note that Challenger only tracks these firms, and does not monitor layoff actions at smaller firms and privately held firms.

These numbers should be of great concern to investors ahead of the monthly unemployment report due out from the Bureau of Labor Statistics on Thursday. As my colleague Tony Crescenzi

noted in his blog

this morning, the monthly ADP numbers that were just released imply that the unemployment numbers could be bleak.

As I noted last week, any further spikes in unemployment could crimp consumer spending even further, triggering a vicious cycle whereby slackening demand fuels further layoffs.

It's understandable that John Challenger found little solace in the June job cuts figures. "If you compare this to past cycles, it's fair to conclude that the high level of layoffs are likely to continue."

Challenger is especially concerned that seemingly strong and stable companies are starting to shed jobs, citing Tuesday's layoff announcements at

Starbucks

(SBUX) - Get Report

and recent announcements at

Goldman Sachs

. "That's a bad sign for jobs at smaller companies that are often dependent upon these bigger companies," he says.

Challenger also notes a troubling trend among government employees. He says that "municipalities are under mounting pressure" due to weakening real estate receipts. The "government/non-profit" category was the second highest in terms of layoffs in June, with 10,800 jobs shed. (Financial services again led the way with 19,000 jobs shed in the month.)

Rising layoffs

Click here for larger image.

Source: Challenger, Gray & Christmas

If you're keeping score, 200,000 jobs were shed in the first quarter, and 275,000 jobs were cut in the second quarter -- at least according to the above-cited methodology employed by CGC. If the pace of job-cutting continues in the last half of the year, annual job cuts could surpass one million for the first time since 2005. At that point, job cuts had exceeded one million per year for five straight years, according to CGC's monthly report.

That level of job cuts, coupled with a lack of job creation, has not had a large impact on the stated unemployment rate -- thus far. Yet, as Tony Crescenzi noted in that blog post cited above, the government data are not necessarily trustworthy.

Stay tuned for Thursday's unemployment rate. If the number of newly-unemployed exceeded 100,000 in June, as some suspect, then the market reaction could prove to be fairly negative -- especially in a thinly-traded holiday week. A weak number could also lead the Fed to forestall plans for expected rate hikes later this year.

David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.