Challenger Weighs In On Job Cuts

This past Wednesday, Challenger, Gray & Christmas released their much anticipated job cut data. The results were not too pleasing with terrifically awful trends.

Reaching levels not seen in nearly five years, 112,884 jobs were taken off the table in October. Leading the pack for the month of October were the following industries: financial, automotive, pharmaceutical, industrial goods, computer, and consumer products with each cutting 17,949; 15,692; 8,956; 8,252; 7,548; and 6,946 jobs, respectively.

Data: Challenger, Gray & Christmas
Charting: rp

October’s total is nearly 20 percent higher than September’s job cuts – that is huge! One question I am wondering is, how much worse will it become before it gets better?

After bouncing up and down this summer, it appears as though job cuts are trending upwards since August. This is tremendously disturbing, especially when year-over-year we see that cuts decreased steadily from August to December. With the economic contraction in full swing, it is likely cuts for November will remain above 95,000 for the month.

Data: Challenger, Gray & Christmas
Charting: rp

Looking at this year’s leaders, we see that finance holds the crown, automotive is trailing and picking up steam, while government/non-profit jobs remain at an arm’s length in a distant third.

Cuts in the finance sector, which have slowed down, will most likely continue on their deceleration while I expect the automotive sectors cuts to pick up tremendous steam.

Today, General Motors reported their quarter with an astounding net loss of $2.5 billion. What struck me was the $1.7 billion non-cash charge for the settlement concerning the elimination of post-65 salaried retiree healthcare coverage – ouch. You better believe there are more cuts coming down the line.

Ford, on the other hand, reported a mind-numbing $7.7 billion cash burn for the quarter. This is the kind of thing that makes you slam your head against a desk, full speed. Problem: efforts to counter this mounting burn is being offset by reduced sales. More cuts, more cuts and more cuts are in store for the near-term.

According to Federal Reserve policy-maker Dennis Lockhart, "The U.S. economy in September and October appeared to weaken dramatically ... Problems are now broad-based."

With this knowledge we can only expect auto sales to weaken further, continuing the downward trend and increasingly sputtering GM and F into further trouble. More on this later…

Data: Challenger, Gray & Christmas
Charting: rp

**2008 data is a prediction based upon the author's calculations

Now, assuming that all of that news was absorbed into your skull, let us move onto something which may be considered good news.

Considering the scale of the current economic retrenchment, we see that 2008 will likely not yield over 1.2 million job cuts. According to my calculations we will hover somewhere between 1.04 and 1.1 million cuts for the year. Essentially, we are living 2005 all over again.

The spin on this is it could be much worse, for instance, 2001 which had over 1.9 million job cuts. Only time will tell as November and December send 2008 on its merry way and into the history books.

rp

Automakers Face Catastrophic Week

It is the first week of the month and you know what that means.

New data.

Unfortunately, November's data has shed light into some of the worst numbers in years. That's right; the automakers have officially fallen off a cliff. Believe it.

The US SAAR Total Sales came back atrocious. The Challenger jobs data is disappointing, albeit, it was not expected to be an uplifting report.

Although many were hoping that Obama's victory would spur the markets, it appears after today's close that may not be the result. Granted, it is one day into Obama's victory -- do not jump to conclusions.

GM and F report Friday. I would not be surprised if one of the firms file for Chapter 11 and restructure themselves accordingly. The choice to be made is wait and prolong the pain or make this short and sweet. Kind of like taking off a band-aid.

More detail and predictions to follow.

rp

Challenger Report: Painting an Ugly Picture

With the financial industry in chaos, thank you Lehman Brothers, the auto sector is looking quite subdued right now.

But wait, there’s more.

Challenger, Gray & Christmas is the nation’s first and oldest outplacement consulting firm. You know what that means; these are the job cuts guys. The firm’s most recently released report displays some rubbish numbers for the auto industry, which lead August in job cuts.

To be more specific, automotive accounted for 17,233 job cuts - a nice chunk out of the 88,736 cuts for August. Year-to-date, the automotive industry has tallied up a significant 80,323 cuts. This is nearly an 83 percent increase year-over-year from 43,897 cuts in August 2007.

Data: Challenger, Gray & Christmas

When I spoke with John Challenger, CG&C’s Chief Executive Officer, in July, he did not seem to believe we would surpass one million cuts for the year. Granted, many things have changed since and it appears that the markets will breach that epic number.

In his latest report, Challenger said “We have not seen this level of summer job cutting since 2002, when the country was still struggling to recover in the wake of the 2001 recession and September 11.”

I assume that at the current pace we will reach somewhere in between the levels of 2002 and 2003; approximately 1.2-1.4 million job cuts for the year 2008. Please note the graph “Yearly Job Cuts.” You can see the level we are at year-to-date compared to previous year totals.

Data: Challenger, Gray & Christmas

Clearly, this will yield a sizable impact on the auto builders. Not only will they be shedding staff to compensate for their cash burns, the companies will also experience even poorer sales due to less consumer spending.

With this in mind, I reinforce my position on September’s US SAAR Total Sales data coming back weaker from August.

Get out your helmets. It is going to be a rough ride into 2009.

rp