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U.S. Company Job Layoffs Portend Poorly for Economy 2012

Companies / Unemployment Oct 26, 2011 - 06:52 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDavid Zeiler writes: Anticipating a sluggish economy for the rest of this year and into 2012, several major U.S. companies have set aside money to pay for possible layoffs and plant closures.

Such moves will help corporations maintain earnings growth, but will add pressure to the U.S. unemployment rate, which for more than two years has been stuck around 9%.


Some analysts worry that the talk of layoffs at some U.S. companies could trigger others to consider cutting positions, which in turn would cause further damage to an already stagnant economy.

"In many ways, this is part of the negative feedback loop," Deane Dray, an analyst at Citigroup Global Markets, told The Wall Street Journal. "Once you start head-count reductions and plant closures, you are adding to the unemployment, you are adding to the anxiety in the market."

Of course, it's not the job of chief executives to worry about what impact their decisions have on the overall economy. And having lived with an economy that just can't seem to climb very far out of recession, many CEOs feel it necessary to prepare for a challenging future.

"We all read the headlines," Danaher Corp. (NYSE: DHR) Chief Executive Larry Culp said last week during an earnings conference call. "It's better to be prepared and ready for what may come than to postpone what we think is a very prudent action."

Danaher said it would increase its fourth-quarter restructuring budget to $100 million - twice its previous amount.

Likewise, United Technologies Corp. (NYSE: UTX) raised its restructuring budget by a third to $300 million, and Honeywell International Inc. (NYSE: HON) said it would use $300 million it gained from a divestiture for restructuring.

United Technologies, which has already cut $188 million so far this year, says it is determined to hit its 10% earnings growth target for 2012.

"We're going to continue to push them to get toward 10%, and we're doing the restructuring now," United Technologies Chief Financial Officer Greg Hayes said on his earnings conference call last week. "We're doing whatever we can to try and make sure that that happens."

Jobs Under Siege
Many job cuts already were in the works well before the latest talk of restructuring.

As recently as this past summer, Merck & Co. Inc. (NYSE: MRK) announced that it planned to shed 13,000 workers by 2015; Lockheed Martin Corp. (NYSE: LMT) announced plans to cut 6,500; Cisco Systems Inc. (Nasdaq: CSCO) 6,500; Research in Motion Limited (Nasdaq: RIMM) 2,000; and Goldman Sachs Group Inc. (NYSE: GS) 1,000.

"These layoffs were very broad-based. Many of these companies are iconic companies, well known, big names," John Challenger, CEO ofChallenger Gray & Christmas Inc. told CNBC. "This is what precipitates out when you have an economy that is stalling."

According to Challenger, September was the worst month for announced layoffs in the United States in over two years, with both private and public sector employers slashing 115,730 workers -- more than double the number let go in Sept. 2010.

Dim Outlook
Even companies not talking about layoffs have lowered their expectations for the fourth quarter, and in many cases, for 2012 as well.

For example, 3M Company (NYSE: MMM), which reported disappointing earnings yesterday (Tuesday), lowered its full-year 2011 forecast to $5.85 to $5.95 per share from $6.10 to $6.25 per share. 3M added that it would respond to expectations for slower growth with "aggressive cost management."

And Delta Air Lines Inc. (NYSE:DAL), which is dealing with high fuel costs, said it expects the "uncertain economy will continue into 2012."

To cope, Delta has offered buyouts, consolidated facilities and reduced flights by 1%. The airline said it would cut flights another 5% in the current quarter, and a further 2% to 3% in 2012.

Such companies may not be considering layoffs, but they aren't looking to hire, either.

"I think people are in the process of dialing back 2012 expectations and that will bleed into whatever they were planning," Michael Neal, a General Electric Co. (NYSE: GE) vice chairman who heads the company's GE Capital financearm, told Reuters. "My view is they continue to stay with a tight belt and I think it means less hiring than they would have done otherwise."

With few U.S. companies hiring, and others looking at more layoffs, concern that the economy will continue to languish well into 2012 could easily become self-fulfilling prophecy.

"We certainly are on a cusp here and it does feel as though the economy has downshifted," CEO Challenger, told Reuters. "A lot of companies are coming into this last quarter cautious and they're not optimistic ... It feels like the economy could turn either way."

Source : http://moneymorning.com/2011/10/26/layoffs-at-u-s-companies-portend-poorly-for-2012-prospects/

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