ShareThisEarnings season has turned into layoff season.
Over the past two weeks, as public companies have been reporting their often-dismal fourth-quarter results, many have announced an alarming number of staff reductions, sometimes reaching into the tens of thousands.
Many of these job cuts are buried in the earnings release under headings such as "adjusting the cost structure." But when the media get their hands on them, they're in the headlines.
On one day last week alone, U.S. companies announced more than 50,000 job cuts, bringing January's total to more than 180,000.
As scary as these numbers seem -- and they are serious, indeed -- it helps to put them in context.
Historically, January is the biggest month for public-company layoff announcements, according to a tally that Challenger, Gray & Christmas has been taking since 1993.
That's partly because some companies planning year-end layoffs postpone them until after the holidays, says John Challenger, the firm's chairman.
January is also the month when most companies report their fourth-quarter earnings, and if they're lousy, management wants to show shareholders they're serious about cutting costs. The second-biggest month for layoff announcements is October, when most companies report third-quarter earnings.
Given the impact on morale, companies would not announce workforce reductions they don't intend to make. But it helps to read the fine print.
Many reductions might come through attrition, or by not filling open positions. They might come over a long period of time and, for multinationals, might include a lot of foreign jobs. And even if the numbers sound big, they might represent a small percentage of a company's workforce. Some examples:
Despite a healthy earnings report, global software giant SAP said last week it will reduce its worldwide head count by 3,000 jobs, or about 6 percent, by year end. But the cuts will come mainly from attrition.
Microsoft said it will eliminate "up to 5,000 jobs," or 5 percent of its workforce. About 1,400 positions are already gone but the rest will disappear over 18 months.
Intel said it will shed 5,000 to 6,000 jobs, or 6 to 7 percent, but the cuts will take 12 months and more than half will be overseas. Intel announced layoffs a week after earnings so employees didn't have to read about it first in the earnings report, spokesman Chuck Mulloy says.
Mulloy says Intel needed to cut staff because its business fell off a cliff between mid-October and December, as clients stopped building inventories. The silver lining is that, when things bottom out, they won't have to work off a lot of inventory before they start buying again.
Even if announced layoffs don't strike tomorrow, Joel Prakken, chairman of Macroeconomic Advisers, takes them seriously because of the "color they are creating."
To gauge employment, he pays more attention to the monthly employment report from the Bureau of Labor Statistics and the ADP National Employment Report, which attempts to predict the monthly BLS numbers. Prakken's firm calculates the ADP report based on anonymous data from ADP's payroll processing clients.
Prakken also follows the weekly jobless claim numbers, although these are more volatile and harder to interpret.
Given the cascade of layoff announcements, Prakken says the national unemployment rate will keep rising until next year and will surpass 8 or even 9 percent. It was 7.2 percent in December.
"Employment lags overall economic activity," he says. It typically turns up four to eight months after gross domestic product turns up. He predicts that GDP will turn up "later this year, although the strength will depend on the size and shape of the stimulus package."
As it stands, the bill provides little in the way of direct job creation. Instead, it counts on $825 billion in tax cuts and spending programs to magically save or create more than 3 million jobs, mostly in the private sector.
Challenger notes that layoff announcements are growing not just in number but in scope. Unlike last year, when they were concentrated in finance, autos and housing, this year "it's in heavy equipment, pharmaceuticals, retail. It reached into every corner of the economy."
Challenger says employment might be nearing a bottom, but he doesn't think companies will start hiring anytime soon. "We may go into a period of jobless recovery," he says. After the previous recession ended in November 2001, employment didn't show sustained growth for 18 months.
If things don't improve in the first quarter, we could be in for another round of job massacres in April.
Wall Street economist Ed Yardeni thinks it could happen sooner. "This has the potential for being ongoing," he says. Companies "are not going to wait for their next quarterly earnings announcement to actually fire people if things continue to deteriorate."
(E-mail Kathleen Pender at kpender(at)sfchronicle.com. For more stories visit scrippsnews.com)
Must credit the San Francisco Chronicle
