During this most recent earnings season, some analysts doubted the ability of companies to continue seeing an uptick in profits.
The top-line numbers – revenue – were largely unchanged or falling, with most gains coming from the bottom-line numbers, costs. Costs have now been cut so deeply, that no more savings are available there, the thinking went.
The thinking is wrong. Costs – the largest of which is staff – continue to be cut.
On Tuesday, Johnson & Johnson announced a reduction in global workforce of 6-7%. The Royal Bank of Scotland is laying off 3,700 British employees, while HSBC is cutting 1,700 – bringing its total to 3,400 for the year. Nokia-Siemens is planning to let 6,000 go – approximately 7-9% of its workforce. The relatively healthy medical industry is also suffering, with pharmaceutical maker Lonza Group laying off 5% of its workforce.
Meanwhile, many job cuts previously reported have turned out to be larger than originally thought.
Even government jobs are no longer safe, with cities like Denver laying off 170 employees, smaller towns letting half their fire department go, and seniority determining who will stay and who will go in San Francisco’s public schools.
These are just a small sampling of the jobs lost and threatened in the past three days. The news is discouraging enough that a quick Google search of “job cuts” uncovers a new, suddenly popular site – dailyjobcuts.com. Forbes has a page with a weekly summary named the Forbes Layoff Tracker.
According to Forbes, the nation’s 500 largest companies have shed over 616,000 jobs in the past year. Most economists believe that the majority of layoffs can be found in smaller firms.
None of this augers well for the upcoming jobs report. It augers poorly for the latest GDP figures as well, with the economy growing at 3.5%, largely on the back of a cheap dollar – increasing exports – and government spending.
Without a recovery in unemployment, there simply won’t be as many consumers available to buy goods. With 70% of the U.S. economy dependent on consumer spending, a weakening consumer will make for weak GDP numbers going forward.
At this point, a number of analysts foresee further troubles ahead for the economy. “A false recovery is under way,” writes Congressman Ron Paul for Forbes. “We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we’ve seen in the past two years.”
Dow 4800, says Sam Vaknin, PhD, writing in Global Politician.
One doesn’t need to believe that dire prediction to foresee troubles if the unemployment rate doesn’t reverse.
Today, the Senate will further debate extending unemployment benefits. If the unemployment rate doesn’t improve within the next few quarters, those dollars – and their high multiplier affect – may well be needed to forestall further economic woes ahead.
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