After the nationwide unemployment rate peaked above 10% in late 2009, we saw a fairly rapid decline in jobless rolls during the next twelve months. By March of this year, the headline jobless number had crept back under 9% and renewed optimism in the economic recovery and equity markets.
Well, we’ve been reading a much different story in the last month or two, with disappointing job creation and a rise in the overall unemployment rate as the meager number of new positions can’t keep up with the sheer volume of folks looking for work.
To make matters worse, we are now seeing a disturbing new spate of layoff announcements — not just a dozen or so workers here and there, but pink slips issued by the thousands at some of the biggest blue chips on Wall Street.
In short, there aren’t enough jobs to go around now, and there will be even fewer jobs a few months down the road. All this points to significantly higher unemployment in the near future, possibly over the 10% mark.
So where will the biggest damage be done? I think these three sectors top the list:
Financial Sector Layoffs
At the end of June, Goldman Sachs (NYSE: GS) warned that 230 jobs could be on the chopping block between late September and March 31, 2012. But Goldman’s labor pool should consider itself lucky. Barclays (NYSE: BCS) announced it will lay off “several hundred” workers this month in addition to the 600 that already were laid off in January. And perhaps most jarring, rumors circulated last week that UBS (NYSE: UBS) is set to cut around 5,000 jobs while rival Credit Suisse (NYSE: CS) is planning to axe about 1,000 staffers.
And that’s not counting possible forthcoming layoffs we haven’t had confirmed or leaked. Struggling financial stock Bank of America (NYSE: BAC) surely cannot sustain its work force of nearly 290,000 for much longer without some cost-cutting. Revenue is stagnant, BofA stock is in the toilet with a 22% loss year-to-date, and the light at the end of the tunnel isn’t close when it comes to the bank’s balance sheet.
What’s more, consolidation has been the name of the game for the better part of two years, and buyouts naturally create redundancies. In late June, PNC Financial Services Group (NYSE: PNC) announced it would acquire RBC Bank, the U.S. retail banking subsidiary of Royal Bank of Canada (NYSE: RY), in a transaction valued at almost $3.5 billion. Also in June, Capital One (NYSE: COF) made a deal to buy ING Group (NYSE: ING) operations for $9 billion. Big buys like this are done to achieve economies of scale – which means eliminating jobs eventually.
The icing on the cake is that many experts think the financial sector didn’t cut deep enough in 2009 and has resumed hiring too quickly. As Wall Street Journal columnist David Weidner noted, “The securities industry still employs about 800,000 people nationwide, according to the Securities Industry and Financial Markets Association. That is only 7.8% fewer than the all-time high, and roughly the same as in 2006, when Bear Stearns Cos. and Lehman Brothers Holdings Inc. still roamed the earth.”
In short, the financial sector is staffed much like it was before the crash. So don’t expect growth anytime soon – and brace yourself for more layoffs.