Cloudy Forecast for Job Market

By: MSN.com edited by Marguerite Jordan Email
By: MSN.com edited by Marguerite Jordan Email

May 3
10:28pm

Companies announced 70,672 layoffs last month, a 44% increase from the number of job cuts that were announced in March, according to a report from outplacement firm Challenger Gray & Christmas.

Announced layoffs were up 18% from April 2006, the first time in seven months that job cuts had risen on a year-over-year basis.

"Coming on the heels of a lower-than-expected GDP reading in the first quarter, the April job-cut surge is likely to further increase concerns about the strength of the economy and the job market," said John Challenger, the outplacement firm's CEO.

However, the first-quarter figure for 2007 -- 195,986 job cuts announced -- was the lowest number for the first quarter of any year since 2000.

The Challenger Gray data emerged at the same time as a report by Automated Data Processing (ADP, news, msgs) showing the slowest private-sector job growth in nearly four years, with companies adding 64,000 jobs in April.

"We seem to be working our way gradually down to a slower pace of job gain, which is consistent with the soft-landing economy," said Richard DeKaser, the chief economist at National City (NCC, news, msgs).

'A tipping point'?
Challenger believes the U.S. may see further job cuts in the coming months. "Unemployment is at 4.4% -- about as low as it can get," Challenger said. "The job market is very, very strong. The question is are we hitting a tipping point where the economy may start to move back the other way."

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On Friday, the Labor Department will release its report on April unemployment. Economists are forecasting a slight increase to 4.5%, up from a 4.4% reading in March. Economists are also forecasting a 100,000 gain in nonfarm payrolls for April after a 180,000 gain in March.

Today, the Labor Department reported that weekly jobless claims fell 21,000 to 305,000 -- the lowest level since January. Economists had been expecting a rise of 4,000 jobless claims.

Big cuts in finance
The finance industry took the prize as the leading layoff sector in April, the Challenger Gray report noted, thanks mostly to Citigroup (C, news, msgs), which announced April 11 that it was cutting 17,000 jobs. For the year to date, the financial sector has announced 50,221 job cuts, a 229% jump from the 15,253 layoffs that were announced in the financial sector in the first four months of last year.

The financial sector "is a sector that is critical to the economy, and any sign of dramatic change there could indicate wider problems," Challenger added.

In the recent past, Challenger explained, the two sectors that have been hardest hit were automotive and housing. "The economy had been insulated from this, but now people have been looking to see if this would spread outside those sectors, and in April, it looks like it has spread to the financial sector."

More cuts in May?
More big job cuts may be coming soon, with The Gap (GPS, news, msgs), IBM Corp. (IBM, news, msgs) and Intel (INTC, news, msgs)reportedly next up with the ax.

Retailer The Gap could be the next big company to announce job cuts. The retail giant is planning major layoffs to try to cut expenses and eliminate bureaucracy, the New York Post reported Wednesday.

"Clearly, some level of job cuts will be necessary," Gap spokesman Greg Rossiter told The Associated Press. "These are never easy, but they will be a relatively small percentage of the overall work force."

Job cuts would be a good move for The Gap both "immediately and for the long term," one analyst said. "I think that anything they can do to streamline the decision-making would probably be the right thing for the cost structure, and also for bringing speed and fashion to the market," said CL King & Associates analyst Mark Montagna.

The Gap, whose stock has been struggling, canned CEO Paul Pressler in January in hopes of invigorating the company and boosting its share price. Shares of the stock have fallen nearly 12% in the past two years.

Meanwhile, IBM will cut 1,315 U.S. jobs from its services operations units, according to published reports.

And Intel could cut 1,000 jobs at one of its New Mexico plants, Bloomberg News reported.

Problems with private-equity boom?
If job cuts continue, Challenger suggested that finger-pointing be focused on the current boom in private-equity buyouts.

In the first quarter of 2007, there were $197 billion worth of private-equity deals, versus a total of $215 billion in all of 2006, noted a report last week by the Service Employees International Union.

The buyers in these take-private deals are often focused on cutting costs before turning the company around and selling it for a higher price. But though the private-equity firms make killings off these deals, the report said, it's the employees who suffer from the numerous changes in management.

The SEIU report highlighted labor's concern about the impact on the workers at the companies involved in private-equity deals.

Workers at firms that had been acquired in such deals often "had almost no voice in the process, little information about their new employers, and no role in developing the plans" for their new career paths, the SEIU report said.

But not everyone agrees about the impact of private-equity action on the job market.

"It's a very hard thing to determine whether private equity really creates or costs jobs," Matt Rhodes-Kropf, a business professor at the Columbia University School of Business.

"The losses are sudden and obvious," Rhodes-Kropf said. "A company comes in, takes over, cuts jobs. The creation is more subtle and more long term," so it's harder to see.

And at least one economist thinks the surge in mergers and acquisitions is good for the economy. "On balance, M&A is a good thing," said DeKaser. "The economy is in a process of constant transition . . . (and) these transitions themselves improve economic efficiencies."

Layoffs declining since 2001
Since 2001 -- worst year for layoffs in the past decade, with 1,956,876 -- the number of U.S. layoffs has been on the decline, with the number falling below 1 million in 2006.

So far 2007 has been looking good on the jobs front. Companies have announced 266,658 layoffs so far this year, 15% lfewer than the number announced in the same period last year.


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