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.
Tech Sector Layoffs
But for tech sector employees, the pain has only just begun.
According to staffing experts Challenger, Gray & Christmas, electronics companies announced 1,048 cuts in June compared with 997 in May. That’s a decent uptick. But more importantly, the computer sector announced 877 layoffs in June, compared to zero in May.
That’s because tech, which seemed to be the single biggest driver of optimism at the end of 2010, is starting to lose momentum. Strong Q4 earnings, semiconductor demand and a modest increase in corporate IT spending prompted a dramatic rally to finish off 2010 – with the broader stock market rallying about 20% from Sept. 1-Jan. 1, and the tech-heavy Nasdaq surging 25% in the same period.
Unfortunately, the easier earnings comparisons are gone. And with the economy remaining sluggish, it’s unlikely that growth is going to come from significant increases in demand from consumers and businesses. That means Cisco’s plan to juice the numbers by “streamlining” operations might catch on with other cumbersome tech companies that have too many staffers.
Clearly, Cisco is not the only company that’s got a horrific org chart and inefficient staffing. That’s because cash-rich tech companies have been on buying binges and are just starting to figure out how to integrate operations of their new properties.
Recent deals like Microsoft (NASDAQ: MSFT) buying Skype for $8.5 billion are just the tip of the iceberg. In the last year-and-a-half, IBM (NYSE: IBM) has done 17 acquisitions, including buying Netezza for $1.7 billion last September. Since early 2010, Oracle (NASDAQ: ORCL) has done 10 deals, including a massive buyout of Java software king Sun Microsystems for $7.4 billion and a $1 billion deal in November for eCommerce giant Art Technology Group. Then you have Hewlett-Packard (NYSE: HPQ), which surely has some streamlining to do after the $2.7 billion buyout of 3Com and the $2.35 billion buyout of 3PAR.
If the financial sector has to rearrange the furniture because of recent consolidation, the tech sector might have to tear its office down to the studs. In a fragile economy like this, you can be sure that corporations are looking for efficiencies in staffing – and big deals like that are sure to result in pink slips for redundant employees.
Aerospace and Defense Layoffs
At the market lows in March 2009, one of the most shocking layoff announcements in sheer size included an 11,600-worker reduction by United Technologies Corp. (NYSE: UTX), which said it was part of worldwide restructuring. But if you think those deep cuts would have left the aerospace and defense industry with little fat left to trim, think again.
The aerospace and defense industry contributed to the largest number of job cuts. The sector has seen a 241% rise in job cuts in 2011 to a total of 20,851 layoffs so far this year, according to IndustryWeek.
And that pace could be picking up even more in anticipation of more defense spending cuts now that the nation’s debts and spending habits are in focus. Consider that Lockheed Martin (NYSE: LMT) announced June 30 that it will give 1,500 employees in its airplane division pink slips. That’s after a separate report earlier in June that 1,200 space-focused employeesface layoffs after cuts to NASA.
What’s more, this follows news in January that Boeing would make 900 layoffs at its Long Beach, Calif., C-17 airplane production facility – almost a quarter of the 3,700 jobs there. Worse, there are reports that, without a surge in new orders, the factory will be completely shut down by the end of 2012.
Even more damage is yet to come, if you believe industry insiders. In a letter to Congress just days ago, Aerospace Industries Association President Marion Blakey argued deeper DoD cuts would spawn new job losses on top of these layoffs.
The aerospace industry is losing altitude in a hurry, and it’s only a matter of time before companies push out more workers to lighten the load.
Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
