Challenger Reports Planned Layoffs Highest in 8 Months; ADP Reports Strongest Job Gains in 3 Years; Impact of State Budget Deficits on Jobs

Inquiring minds are investigating divergences between Challenger planned layoffs (the highest in 8 months) and the ADP payroll report that shows +93,000 jobs added last month, the largest private-sector job gains in 3 years.

Planned Layoffs Highest in Eight Months

Please consider Employers in U.S. Announce Most Job Cuts in Eight Months

Employers in the U.S. announced plans in November to cut 48,711 jobs, the most in eight months, as government agencies trimmed payrolls.

“Job cuts that have been concentrated at the state and local level could expand to include federal workers in the new year,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “Other sectors have seen significant declines in job cuts this year and, at the moment, there is little evidence of a possible resurgence in 2011.”

Today’s report also showed that employers announced plans in November to hire 26,012 workers, down from 124,766 the prior month. Retail businesses led the gains, planning to add 15,900 workers.

Government and non-profit agencies have announced plans to let go of 138,979 workers this year, which is 177 percent more than the 50,168 firings by the pharmaceutical industry, the next biggest job cutter, according to Challenger.

Obama earlier this week proposed freezing the pay of about 2 million federal workers this fiscal year and next as a step toward reining in the budget deficit. The president’s deficit- cutting commission, which proposes reducing the government workforce, will vote Dec. 3 on whether to send a plan to Congress.

Staff reductions are expected at state and local government agencies. New York City, facing a $3.3 billion deficit in next year’s budget, will cut its workforce by more than 10,000 over the next year-and-a-half, Mayor Michael Bloomberg’s budget office said Nov. 18. More than 6,200 workers will be fired, and the remainder of the cuts will be made through attrition, his office said.

Hiring Plans Sharply Lower

Challenger reports that hiring plans crashed from 26,012 workers, down from 124,766 last month. Some of that dropoff is reflective of seasonal hiring patterns. The key question is how many of those hired last month survive into the new year.

However, the answer to that question depends on whether or not we have sustained pickup in consumer demand or merely pent-up demand for another nice Christmas before consumers return to more frugal patterns.

The start of the holiday shopping season was certainly brisk, but black-Friday itself was a huge disappointment. See "Seems Like Old Times" as Black Friday Shoppers Storm Malls, But Do They Buy Anything? In Black Friday Bust, Sales Increase .3% for a full report.

A seasonal ramp that fades into the sunset just as states and federal workers are laid off would quickly have the unemployment rate back above 10 percent.

ADP Reports +93,000 Jobs Added Last Month

The BLS jobs reports comes out Friday, but the ADP report is out now. Please consider the ADP November 2010 National Employment Report

Private-sector employment increased by 93,000 from October to November on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from September to October was revised up from the previously reported increase of 43,000 to an increase of 82,000.

This is the tenth consecutive month of gains, which have averaged 47,000 during that period. Nevertheless, employment gains of this magnitude are not sufficient to lower the unemployment rate, which likely will remain above 9% for all of 2011.

Furthermore, given modest GDP growth in the second and third quarters, and the usual lag of employment behind GDP, it would not be surprising to see several more months of only moderate gains in employment even as the economic recovery gathers momentum.

ADP's caution is merited, even more so in light of Challenger data. Moreover, there are numerous wildcards, all with risks to the downside.

Government Workforce Reductions

President Barack Obama’s deficit-cutting commission proposed a 10 percent reduction in the federal workforce. Excluding postal workers there are 2.1 million executive branch civilian employees. A 10% reduction would be 210,000 jobs.

Looking at the broader picture, there are 20 million government employees at all levels (city, state, local, federal, county, etc). A 10% reduction across the board would be a reduction of 2 million jobs, and I would call that a start. However, even a 1% decline would take away 200,000 employees and that number is reasonably close to what Challenger reported.

Will the President and Congress get rid of those employees? If so, factoring in city and state cutbacks, some 400,000 government jobs would go up in smoke in 2011. That's a fair amount of jobs, but only a start as to what needs to happen.

Two Million With Jobless Benefits About To Expire

The second wildcard pertains to unemployment benefits. Yahoo!Finance reports Holidays about survival as jobless benefits end

Benefits that had been extended up to 99 weeks started running out Wednesday. Unless Congress approves a longer extension, the Labor Department estimates about 2 million people will be cut off by Christmas.

The average weekly unemployment benefit in the U.S. is $302.90, though it varies widely depending on how states calculate the payment. Because of supplemental state programs and other factors, it's hard to know for sure who will lose their benefits at any given time.

Congressional opponents of extending the benefits beyond this month say fiscal responsibility should come first. Republicans in the House and Senate, along with a handful of conservative Democrats, say they're open to extending benefits, but not if it means adding to the $13.8 trillion national debt.

U.S. Rep. Mike Pence, R-Ind., the No. 3 Republican in the House, said extended benefits must be paid for now, rather than later, if they're going to win support from fiscal conservatives. "The fact that we have to keep extending unemployment benefits shows that the economic policies of this administration have failed," said Pence spokeswoman Courtney Kolb.

I still expect a compromise will extend those benefits, but if so, for the very last time. The next Congress will be far tougher.

Middle Class Tax Cuts

A third wildcard is Critical Middle-Class Tax Cut Vote Coming Up: Will Democrats Divide and Conquer Strategy Work?

Tax cuts and unemployment benefit extensions are related. I expect a compromise will extend both tax cuts and unemployment benefits.

Neither tax cuts nor unemployment benefits directly impact jobs, but people can't spend money they do not have. If people do not spend money then what are stores going to do with all the recent hires?

Yet, Congress cannot give away free money forever. Hill it be higher taxes or reduced budgets? The latter means lower wages or fewer jobs. Long term it has to be done. Short term there is going to be a lot of pain.

States Investigate Ending Medicaid

Some state budgets are in such dire straits that States Weigh Unthinkable Option: Ending Medicaid

Huge budget shortfalls are prompting a handful of states to begin discussing a once-unthinkable scenario: dropping out of the Medicaid insurance program for the poor.

Elected and appointed officials in nearly a half-dozen states, including Washington, Texas and South Carolina, have publicly thrown out the idea. Wyoming and Nevada this year produced detailed studies of what would happen should they withdraw from the program. Wyoming found that Medicaid accounts for 63% of the state's nursing-home revenue.

The idea of abandoning Medicaid as a solution is so extreme that even proponents don't expect any state will follow through, but officials are floating the discussions because dire budgetary pressures have forced them to at least look at even the most drastic options.

Medicaid has become one of the biggest items on state budgets, and states complain they don't have enough flexibility to pare it without losing their federal matching funds. The federal government, on average, covers 57% of the cost of the program for states. In exchange, states must keep Medicaid open to all who qualify.

Some states, in particular those led by Republicans, are calculating whether they'd be better off giving up the federal funding and replacing Medicaid with a narrower program of their own. Texas Gov. Rick Perry has proposed that his state get out of Medicaid in favor of a state-run system unburdened by federal mandates—including the one that prohibits states from reducing eligibility for the program if they want to qualify for the federal matching funds.

"We feel very comfortable that we could come up with a more equitable, a more efficient, and obviously a more cost-effective way to deliver health care," he said.

Unfunded Federal mandates are killing states. If states opt for Texas Gov. Rick Perry's solution, there will be cutbacks somewhere. Once again, there would be short-term pain for long-term gain if states act this way.

30 States Have Deficits Totaling $127 Billion

The Wall Street Journal reports State Tests Limits of Spending Cuts

Mississippi Gov. Haley Barbour hailed the Republican wave at the polls this month as a sign that voters want politicians who can cut spending and reduce taxes. It's just the kind of image that Mr. Barbour is trying to cultivate as he weighs a run for the 2012 GOP presidential nomination.

"Anyone who says there isn't a part of state government that can't save money doesn't know what he's talking about," Mr. Barbour told his fellow governors at the Republican Governors Association meeting in San Diego on Thursday. "There is no department—the highway patrol, the crime lab, the highway department—that can't save money."

Yet as states nationwide confront budget shortfalls—more than 30 are facing deficits totaling more than $127 billion over the next two fiscal years, according to the National Association of State Budget Officers.

Other governors also are hacking away at their budgets. In Minnesota, Republican Gov. Tim Pawlenty ordered a series of cuts, including lowering funds for local governments and higher education, and his popularity has eroded. Indiana Gov. Mitch Daniels, another potential 2012 candidate, shrank his state's budget, including pushing students to get college degrees in three years, from four. Democratic Colorado Gov. Bill Ritter, who was facing a tough re-election battle, said earlier this year he would not run again so he could be free to make "tough and unpopular" decisions. Political watchers said his budget cuts had hurt his chances to win.

"We don't have in America a $13 trillion national debt because we tax too little. It's because we spend too much," he said. He contends any department or agency can save money without reducing its effectiveness or cutting services. His goal, he said, is to leave office with a budget surplus.

Haley Barbour's fiscal track record is rather spotty. The Cato institution give him a grade of C. However, times and sentiment have changed.

Voters have said "hell no" to more taxes. That means some combination of lower wages, lower benefits, or higher unemployment is coming up. There is no other way out.

Nightmare In Europe, Slowdown in Asia

The fiscal bickering on Europe and imposed austerity plans on Ireland, Greece, Spain, and Portugal are going to spill over globally. The US will not be immune.

Nor will the US be immune to China and India acting to reduce their overheating economies.

Serious Headwinds in 2011

All of the above factors put huge headwinds on any chance of strong sustainable job growth.

I don't know what Friday's job number will show, (I am actually slightly inclined to take the under), but regardless of how strong the number is, it would be a serious mistake to extrapolate job growth we see now throughout 2011.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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