By KELLY EVANS, JOANN S. LUBLIN, TIMOTHY AEPPEL and JONATHAN D. ROCKOFF
Wall Street Journal October 24, 2008
Employers grappling with the financial crisis and a slowing economy are accelerating and broadening job cuts in multiple industries, potentially deepening the economic downturn.
Xerox Corp., General Motors Corp. and bottler Coca-Cola Enterprises Inc. disclosed new job cuts Thursday, following layoff announcements earlier in the week by Chrysler LLC, Merck & Co. and Yahoo Inc., among others. The economic slowdown, previously concentrated among housing- and finance-related employers, is spreading to once-sheltered sectors like health care and technology.
"As the overall economy weakens, even those not in the epicenter of the shock will start seeing losses," said Zach Pandl, an economist with Barclays Capital. Barclays economists expect U.S. payrolls, which have dropped 760,000 jobs so far this year, to shrink about 200,000 a month through the middle of next year.
That will likely push the unemployment rate, now 6.1%, to 7% or 8%, above the 6.3% peak in the last economic downturn. That high came in June 2003, about 18 months after the recession was technically over.
The Labor Department said Wednesday that the number of mass layoffs in September -- defined as instances in which employers cut 50 or more jobs -- rose to 2,269, the most since September 2001.
While the job market has been deteriorating over the past year, analysts say employers are now beginning to eliminate jobs more quickly than in past downturns, in part because of the uncertainties created by the credit crunch and volatile financial markets.
Employers want to "get ahead of the curve" of a weakening economy, said Bernadette Kenny, senior vice president of human resources at Adecco Group North America, a unit of Adecco SA, the world's biggest staffing company. Adecco itself said last week it would cut 600 jobs in France. The company has eliminated a small number of U.S. and Canadian jobs this year, but Ms. Kenny said she still has openings, particularly in engineering. In past downturns, she said, companies "would go into the misery zone" before laying off workers.
Not this time. Xerox Chief Executive Anne Mulcahy said Thursday that the company's financial position "remains strong," even as she announced plans to cut 5% of the work force, or about 3,000 jobs. She said the cuts would help Xerox deliver "double-digit earnings growth in 2009." Chief Financial Officer Larry Zimmerman said the cuts would affect most divisions except sales, as well as many parts of the globe.
The Xerox cuts were the latest sign of growing unease in technology. Last month, Hewlett-Packard Co. said it would cut 24,600 employees, or 7.5% of its work force, as it sought to integrate its acquisition of tech-consulting company Electronic Data Systems Corp. Dell Inc. Chief Executive Michael Dell said this week his company has laid off about 8,900 workers world-wide, or about 10% of its work force, since last year.
Tuesday, Internet giant Yahoo said it would lay off 10%, or roughly 1,500, of its employees by year end. The cuts are part of Yahoo's broader plans to reorganize, but executives said they would also help the company weather the economic downtown, which is hurting its display-advertising business.
Start-ups, too, are trimming payrolls. Internet companies Mahalo, Imeem and AdBrite have laid off 10% to 40% of their staffs. The numbers involved are relatively small. But start-up executives said they are acting pre-emptively, to avoid repeating the mistakes of small companies earlier in the decade that died after not cutting quickly and deeply enough.
The downturn is "much worse than I thought it would be, and ignoring market conditions today would only mean deeper cuts down the road," Mahalo CEO Jason Calacanis wrote in a blog post Thursday.
In another ominous sign, UPMC, the big Pittsburgh-based hospital system, said this week it was laying off 500 employees as part of continuing cost-savings initiatives. The layoffs are almost entirely "nonclinical" and are coming from all parts of the hospital network, which employs about 50,000.
The health-care industry had been one of the few bright spots in the national economy, adding roughly 360,000 jobs over the past year. Layoffs at hospitals are bad news for regions like Pittsburgh, which have increasingly come to rely on medical and university jobs to help offset the erosion of jobs in the region's old-line industries.
Drug makers, which have been paring costs for years, are now broadening the scope to include executives and researchers.
Merck, which has eliminated 10,400 jobs over the past three years, said Wednesday it will cut 7,200 positions, or 12% of its work force, by the end of 2011. The layoffs will touch every part of the company, from sales representatives to researchers, and a quarter will be mid- and senior-level executives. The company is closing labs in Seattle, Japan and Italy.
Chief Executive Richard Clark said the latest cost-cutting wasn't a reaction to the company's 28% decline in third-quarter profit but part of longstanding efforts to reposition Merck for a new era.
Spreading layoffs could further exacerbate weakness in consumer spending, the largest driver of U.S. economic growth, and delay any recovery. "A weak labor market makes consumers and businesses even less creditworthy and causes lenders to pull back even further," says Barclay's Mr. Pandl.
The government said Thursday that the number of new claims for unemployment benefits last week rose by 15,000 to a seasonally adjusted 478,000
In a sign of weakness in the consumer economy, Coca-Cola Enterprises, the world's largest soft-drink bottler, said on Thursday it has laid off more than 1,000 people, primarily from management ranks, in its North American operations since Labor Day. The bottler has been struggling to revive soft-drink sales in the U.S.
Many manufacturers, meanwhile, says they have seen a sudden drop in orders and are quickly moving to cut jobs to avoid building up inventories. Makers of construction machinery, powerboats, appliances and copper pipe are among those shedding workers.
Pipe-coupling maker Victaulic Co. of America last week said it would eliminate 100 jobs at a Pennsylvania factory that typically employs more than 1,000 people. The company said the action was "in response to a precipitous decline in our business over the last 30 days."
Companies that serve the housing sector are growing even more pessimistic as a recovery recedes further into the future. Window maker Silver Line Building Products disclosed Monday it would close a North Carolina plant by year-end and lay off 428 workers because of slow sales. The company will shift production to plants in New Jersey and Georgia but won't add workers there, a spokeswoman says.
Meanwhile, at the center of the economic crisis, financial companies continue to lay off thousands of workers. Cleveland-based National City Corp. said this week it would eliminate 4,000 jobs, or 14% of its work force. Goldman Sachs Group Inc. is preparing to lay off 10% of its 32,500 employees, according to people familiar with the matter. And Bank of America Corp. is expected to lay off thousands of workers as it completes its acquisition of Merrill Lynch & Co. The financial-services industry has lost 172,000 jobs since December 2006, according to the Labor Department.
Companies overseas are cutting employees, too. In France, layoff plans have become a fixture on the morning news. Last month, car maker Renault SA said it would shed 6,000 jobs in Europe, citing difficult market conditions. This week, mail-order group La Redoute, part of retail giant PPR SA, announced 580 layoffs.
—Betsy McKay, Shirley Wang, Pui-Wing Tam, Dan Fitzpatrick, Ethan Smith and David Gauthier-Villars contributed to this article.
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