The gathering gloom about the global economy - China's
slowdown, Europe's austerity-fed malaise - is not just knocking
down the earnings and stock prices of U.S. companies. It's also
starting to lead to what could become another round of large
employment cuts, and that could compound economic weakness here
Du Pont (
), in announcing crummy third-quarter results this week, said it
would ax 1,500 workers. Dow Chemical (
) said it would cut 2,400.
Yes, the overall employment picture in the U.S. has brightened
US Unemployment Rate
But labor force participation has been declining steeply,
after decades of rising due to women entering the workforce.
US Labor Force Participation Rate
The overall jobless rate may continue to decline as the
economy, net, adds more jobs. But which jobs do you think offer
better pay and benefits? The long-term ones at Dow and Du Pont,
or the newer positions at smaller companies and in growth areas
such as home health care?
And, as we know, the unemployed spend less, eventually fall
behind on mortgage payments, don't fund their 401-K's, and before
you know it, you've got another recession (did we ever really
leave the last one?).
And one should never underestimate the tendency of a U.S. CEO
to get rid of workers. The corner office in this country has,
over the last thirty years, increasingly been inhabited by those
with short attention spans and limited interest in solving
complex problems. A division lagging? Sell or shutter it. Wages
too high at a factory? Ship the work to China. Margins under
pressure? A round of layoffs must be in order.
Each of these decisions may be good for the CEO's
shareholders. But the combined effect of the
fire-first-ask-questions-later management approach is to increase
the severity of job losses in a downturn. In this election
season, one certainly doesn't want to break ranks with those who
, but might there be just a little something to learn from the
German record of labor-management cooperation, shared pain (fewer
hours all around; fewer layoffs), and smart investment to
maintain an industrial base?
Likely not. So:
Banks such as Wells Fargo (
), JPMorgan (
), Bank of America (
) and Citigroup (
) are facing margin pressure now due to low interest rates. Don't
be surprised if they resort to layoffs. Consumer products
companies like Procter & Gamble (
) and Pepsico (
) are finding it tougher than expected to shell their wares in
developing countries, and can't seem to raise prices fast enough
in home markets to maintain margins.
Jeff Bailey is the editor of YCharts, which includes the
YCharts Pro Platinum
for professional investors.