Poor unemployment report points to troubled US economy
The US added 69,000 jobs in May, the Labor Department reported Friday – the third straight month of disappointing jobs numbers. The unemployment rate edged higher, to 8.2 percent.
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Although it’s not clear why layoffs increased by 38 percent over two months ago (the low point for the year), John Challenger, CEO of the firm, says some of the layoffs may be related to companies reassessing their prospects given the economy's slow growth.Skip to next paragraph
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“When the economy starts to go sideways, some of the companies that are a little more fragile start to look into the future to see what their demand will be in late 2012 or early 2013, and they can no longer hold the optimism they had earlier in the year,” he says.
However, he also wonders if companies are getting nervous about the deadlock in Congress over what to do with the Bush-era tax cuts, which expire at year’s end, as well as the forthcoming automatic spending cuts if there is no deal on the budget.
“There may also be some increased concern that the economy is propped up by extraordinary fiscal stimulus, and it may not have enough momentum on its own to weather the storm if some of that stimulus ends at the end of the year,” says Mr. Challenger.
Layoffs may happen immediately or be spaced over the course of several months, depending on the size of the cuts, says Challenger. “Generally, the larger the cuts, the more time a company takes to implement them.”
One of the largest of the announced layoffs in May came from computer pioneer Hewlett-Packard, which said it will reduce its 350,000-member workforce by 27,000. The downsizing will take place through layoffs and early retirements through 2014. At the same time, the company says it will limit its new hires.
“For those positions we have open, we’re giving top consideration to internal candidates,” said the company in an internal memo.
In the months ahead, there could be some other large layoffs, says Challenger.
For example, earlier this year, Hostess Brands, which makes Twinkies, Ding Dongs, Drake’s Cakes, and Wonder Bread, filed for bankruptcy and subsequently sent notices to all 18,500 workers that their jobs may be lost by plant closings, the liquidation of the company, or other restructuring moves. Hostess, based in Irving, Texas, is still in the process of negotiating with the International Brotherhood of Teamsters, which represents many of its workers.
However, Challenger says part of the company’s problem is shifting attitudes in the country.
“People don’t buy desserts like they used to,” says Challenger. “There has been a cultural shift away from sugar, especially old sugar.”