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Sunday, October 05, 2008 1:04 PM

Brace For Massive Layoffs

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Main Street and Wall Street both better be bracing for layoff because they are coming. I talked about that a bit in Jobs Contract 9th Consecutive Month.

Mass Layoffs Rise

One measure of future unemployment can be found by looking at mass layoff announcements. These are mass layoffs that have been announced, and are coming down the road, but are not yet reflected in the unemployment numbers. Please note that U.S. September Job Cuts Rise 33% From Year Ago, Challenger Says

Job cuts announced by U.S. employers climbed 33 percent in September from a year earlier, led by reductions at computer- and automakers, according to a private placement firm.

Firing announcements rose to 95,094 last month from 71,739 in September 2007, Chicago-based Challenger, Gray & Christmas Inc. said in a statement today. Hewlett-Packard Co., the world's largest computer-maker, said last month it would eliminate 24,600 jobs, accounting for much of September's increase, Challenger said.
Economic data continues to suggest the Credit Crunch Has Reached Critical Mass and is rapidly picking up steam. Unemployment is poised to soar still higher. There is no driver for jobs, nor will the misguided $700+ billion bailout plan of Paulson provide any.

Bracing for U.S. Corporate Budget Cuts

BusinessWeek is is talking about Bracing for U.S. Corporate Budget Cuts
William P. Lauder was already adjusting his corporate budget for a tough holiday season. Then the financial crisis hit. Amid the turmoil, the Estée Lauder Cos. (EL) chief executive stopped at a Denver mall and found it practically empty. Now he's preparing for the worst. "We always do scenario planning, but not to the degree that we are doing now," says Lauder. He's asking each brand manager at the New York cosmetics giant three questions: "What must you have? What would you like to keep going? And what can you give up?"

Faced with squeezed credit and unpredictable sales, U.S. companies are bracing for budget cuts that could be far-reaching, painful, and in some cases unprecedented. Even before September's turmoil, Moody's Economy.com predicted that corporate operating expenses—a proxy for budgets—would rise, on average, no more than 7% annually through 2012 across 59 industries, down from several consecutive quarters of double-digit gains.

A mediocre outlook has suddenly grown worse. "Just in the last two days, I have had clients rethinking not only their 2009 budgets but all the way to 2011," says Anthony D. Begando, founder and CEO of Tenon Consulting Solutions in Alpharetta, Ga. On Sept. 25, Rite Aid (RAD) CEO Mary F. Sammons cited "the growing uncertainty of this economy" when announcing a $50 million cut in capital spending over the next six months.

Among the costs coming under immediate scrutiny are marketing and new construction. AT&T (T) and General Motors (GM) have already slashed their 2008 marketing budgets amid tough economic conditions. On Sept. 15, Visa (V) consolidated its ad account from four agencies to one to save money next year. Casino companies scrapped several high-profile expansion projects over the summer.

Faced with such instability, some executives feel it's more prudent to jettison troubled businesses than to fix them. Consumer-product maker Newell Rubbermaid (NWL) now plans to dump $500 million of low-margin products, such as $10 plastic garbage cans, reversing a previous plan to turn them around. Newell CEO Mark D. Ketchum says it's the best strategy, given the tough road ahead. "Two words come to mind when I think of 2009—difficult and volatile," says Ketchum.

The most painful trim, of course, is in payroll. Many executives expect layoffs to be swifter and deeper than before, accompanied by pruned salaries and bonuses for those who remain.
Shotgun Marriages and Bankruptcies

The recently announced shotgun marriages and bankruptcies are going to cost tens of thousands of high paying and or high benefit jobs. Here is a partial list.

  • Merrill Lynch (MER) and Bank of America (BAC) merger.
  • Lehman bankruptcy
  • Washington Mutual and JPMorgan (JPM)
  • Citigroup (C) and Wachovia (WB), OR Wells Fargo (WFC) and Wachovia (WB)

Expect to see more mergers, more bankruptcies, and more layoffs as a result of mergers and bankruptcies.

Hewlett-Packard Co., the world's largest computer-maker, fired a massive warning shot announcing it would eliminate 24,600 jobs, signaling it will not be just financial activities that are affected.

This holiday season is going to be a dismal one. Expect to see reduced profit margins and cutbacks in hours worked between now and Christmas. Those who supplemented income by working two jobs or by working overtime during the holiday season will find reduced opportunities this year. Expect to see more store closings in January as the shopping center economic model continues its slow death.

Commercial real estate, the last main bastion of job creation, is now crashing. There is no other source of jobs other than health care, and health care alone cannot fuel this economy.

Brace for massive layoffs as they are coming.

Mike "Mish" Shedlock
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