The Return Of The Layoff

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Posted: January 25, 2010 at 4:43 am

Print Email Subscribe Free Newsletter Follow us on Twitter 24/7 Wall St Real Time 500 Layoffs in unrelated industries, even when close together in time, are just that—unrelated. That is until they begin to grow rapidly in number.

Three of America’s largest firm announced firings or signaled them during the last week. Wal-Mart (NYSE:WMT) cut the deepest, which is frightening because it is the most financially healthy company in the world. In a surprise announcement, the world’s largest retailer said it would cut 10% of its Sam’s Club division, which means nearly 12,000 workers will get axed. The news cannot be good for the staggering retail sector. Christmas was weak, but Wall St. assumed that Wal-Mart was doing as well as if not better than its smaller competitors. The Wal-Mart move will give other retail firms “permission” to take fresh looks at their staff levels without the stigma of announcing firings ahead of other large store chains.Xerox (NYSE:XRX) also unexpectedly said it would cut 2,500 people. It did so at the same time as it posted good earnings. That means Xerox believes that it can still wring more productivity from the people it will continue to use. The tech sector is still on a bumpy ride while consumers and IT managers try to decide if they can afford to upgrade to new equipment. The beginning of 2010 could cause a fresh round of reviews of how much blood can be squeezed from the employment pool stone. Large firms that made layoffs last year can now look at four quarters of what those layoffs have done to them or for them financially. If cuts worked once, they might work again.

Oracle (ORCL) is close to closing its deal to buy Sun Micro. Sun’s remarkable history of large layoffs is an example of what happens to a company when its products lose most of their relevance and R&D efforts cannot bring the firm back into alignment with customers demands. Sun will now become one of the many divisions of Oracle and that almost certainly means that many management and sales people will be gone by the end of the quarter.
The early part of 2009 was marked by an unprecedented number of large cuts as America’s most well-known companies. In some weeks over 100,000 American were put out of work by “downsizings” at these firms. That process has slowed a year later, but there is a growing body of evidence that it is not going away.

The most critical difference between last year and this is that 10% of Americans, 17% by some measures, are without jobs. The economy has not started to add new jobs yet. Each person that a Wal-Mart, Xerox, or Oracle lets go now is put into jobless pool with a record low number of openings for each job seeker. That means there is no Dutch Boy at the dike to prevent the ongoing effects that unemployment has on housing, credit, and the government’s ability to improve income to the IRS.

The employment mess, a tragedy beyond description, is still going on.

Douglas A. McIntyre