Goodbye, Jobs: U.S. CEOs Won’t Waiver in Laying Off Workers as Global Economy Stalls
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 and abroad.
Yes, the overall employment picture in the U.S. has brightened some.
But labor force participation has been declining steeply, after decades of rising due to women entering the workforce.
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 believe in American exceptionalism , 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 ( WFC ), JPMorgan ( JPM ), Bank of America ( BAC ) and Citigroup ( C ) 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 ( PG ) and Pepsico ( PEP ) 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 just-released YCharts Pro Platinum for professional investors.