Remember when the Fed cited, in its announcement of a too-long-overdue interest rate hike, the improved state of our economy? That will come as news to hundreds of thousands of Americans whose personal economy just fell off a cliff.
The layoff announcements actually started picking up in 2015. Companies like Whole Foods, battered by a price fixing scandal; Walmart, and even stately Neiman Marcus all had to give employees the bad news that some of them would be going home and staying there. With the economy still creating 100,000 jobs a month, something it’s done for the last three years, the cuts seemed to be part of the normal ebb and flow of the employment market. But as it turns out, that wasn’t the case. By the end of 2015 employers had announced nearly a half-million people were getting pink slips, a 36% increase from the year before.
The hits just keep on coming and, with the dismal start to the trading year on the stock market, layoff announcements have picked up. Yahoo could be laying off as much as ten percent of its workforce, over a 1,000 people. Dupont teed up 1,700 pink slips as it gets ready for its merger with Dow Chemical. The numbers started piling up, and now ever day brings the news of thousands more being cut loose, ranging from several hundred at a sugar plantation in Hawaii to over a thousand at a steel plant in Birmingham, Alabama. Department store giant Macy’s called in another 4,500 layoffs and is closing 36 stores.
And we’re just over a week into the new year.
Layoffs – Lighting the Fuse
Layoffs are an insidious double whammy on the U.S. economy. First, they take consumers off the economic battlefield and, for an economy that’s two-thirds consumer spending; every job that’s lost is a hit with almost endless economic repercussions. Even the announcement of layoffs take a toll, even before a single employee is let go. Such announcements trigger almost immediate changes in spending for everyone in the entire organization well before the ax actually falls. Because some states require companies to give employees up to a year’s notice of pending layoffs, the revelations themselves can have an instant ripple effect on the local economy as frightened employees cut back on eating out, buying for the home and other spending.
There are several factors feeding into the current spate of layoffs, at least one of which falls on the Federal Reserve. The strong dollar started putting pressure on corporate profits, particularly for companies dependent on sales in overseas markets. The next layer on the layoff cake was the Federal Reserve raising interest rates. When companies that had taken on massive debt to buy back their stock suddenly found their borrowing costs increasing, combined with lower profits, many panicked. Finally, the market selloff sent chills through corporate boardrooms. The Dow dropped 911 points in the first week of trading; its worst performance as long as they’ve been keeping records. Since executives get paid based on stock performance, any who were thinking about layoffs decided to go ahead with the announcements.
A Bitter Déjà Vu
Just a week into 2016 many are seeing echoes of 2008, when we saw hundreds of thousands of layoffs every month. As the losses on the stock market continue to mount there will be more pressure on corporate boards to lower expenses and that’s going to translate into additional layoffs. How bad it’s going to get will depend upon how much longer the selloff continues. The market is already down ten percent in a just a few days. The difference between now and 2008 is that the credit markets are still flowing, but other factors, including the meltdowns in China and the Middle East, are added pressures on our increasingly powder-keg economy.
When investors start panic-selling the damage can be dramatic. Right now the herd is in a full-blown stampede and it’s probably better not to be in the way.
Trevor Gerszt, America’s Gold IRA Expert, is founder and CEO of Goldco Precious Metals, a privately held retirement services firm in Los Angeles specializing in wealth and asset protection. Trevor also holds a position on the Los Angeles Board of the Better Business Bureau.