Home Depot, Lockheed Martin, others announce head count reductions; restrained hiring in recent years means it’s harder to cut
By Mark Bruno
February 4, 2008
The potential for mass layoffs this year no longer seems confined to just the financial services and housing industries now that major companies in other sectors are starting to announce cutbacks as well.
Economic growth ground to a virtual halt in the fourth quarter—the Commerce Department reported a mere 0.6% growth rate for the last three months of 2007, well below expectations—and more companies are now poised to tighten their spending and search for ways to slash overhead.
With concerns that consumer spending will wilt as we edge toward a recession, some observers say that a wave of corporate layoffs is coming in the not too distant future. “It’s unavoidable,” said Peter Schiff, president of money manager Euro-Pacific Capital. “Corporations are going to have to get leaner, and there are going to be a number of layoffs throughout the year.”
While a number of banks, led by Citigroup a nd Bank of America, have already revealed plans to lay off thousands of employees, companies such as Yahoo, Lockheed Martin and Home Depot announced last week that they would be reducing their head counts by 1,000, 850 and 500 employees, respectively. At the same time, layoffs also started to creep into the picture at retailers such as J.C. Penney and Eddie Bauer, where officials said last week that they would be cutting several hundred jobs combined.
“The biggest risk for corporations in 2008 is that consumers stop spending, either because they cannot [spend] or because they are afraid to spend,” said John Challenger, chief executive officer of outplacement consulting firm Challenger Gray & Christmas. “The layoff picture didn’t worsen much last year, but if people stop spending, corporations will be forced to be more cautious.”
Part of the reason that layoff numbers were relatively reasonable last year—for all of 2007, there were 15,493 announcements of mass lay offs, according to the Bureau of Labor Statistics, a 10% jump from 2006 levels—was that many corporations haven’t been hiring at the same aggressive rates in recent years as they were before the dotcom bubble burst in 2000, Mr. Challenger added.
Moving forward, this could pose a unique management challenge: Because of the more sober hiring rate in recent years, there is less “fat” to cut if a company is considering making layoffs, said Lorraine Hack, a partner in the financial officers group at executive search firm Heidrick & Struggles.
This could mean that some companies look at functions such as marketing or advertising, for example, if there is an immediate need to reduce costs. Or, if a company isn’t inclined to pursue acquisitions in the near future, it may choose to make job cuts in its M&A or corporate strategy groups.
While it may be uncertain exactly where, or how, the bulk of potential layoffs may take place this year, it is clearly weighing on the minds of corporate executives right now. Last month, in a survey of more than 1,300 senior level executives conducted by employment consulting and legal firm Career Protection, roughly half of the executives polled said that they are planning layoffs and reductions this year. That’s up from only 13% of executives who were considering layoffs last January.
“It’s by far the worst forecast that we have had in the last five years, and I was shocked by the breadth of industries predicting layoffs,” said Kirk Nemer, president and CEO of Career Protection.
Specifically, he said that his company has been “inundated with calls” this month from employees at Bear Stearns, Citigroup, Ford, General Motors, Sprint Nextel and Indy Mac, each of which has recently announced work force reductions.
Mr. Nemer added that most executives cited a recession and the slowdown in revenue during the fourth quarter as their main reasons for considering layoffs.
Already, 2008 has seen a notable spike in unemployment levels. The Labor Department reported that for the week of Jan. 21, claims for unemployment rose by 22%, to 375,000—the largest one-week uptick since September 2005, shortly after Hurricane Katrina.
To put that in perspective, there were almost 1.6 million jobless claims filed in all of 2007, or an average of 130,000 claims a month. Some think those numbers will easily be exceeded this year. David Rosenberg, an economist at Merrill Lynch, said in a recent research note that he expects to see a total of 2.5 million job losses this year, and forecasts that the unemployment rate will rise to 5.75% from 5% by the end of the year. FW