Even when the economy is healthy, companies lay off hundreds of thousands of people a week, and up to 1 million a month. The problem: they still see workers as an obstacle to higher profits

IBM will reportedly announce this week the largest corporate layoff ever, at a reported 118,000 jobs. If it does, it is hardly the first time IBM or any other big company will have sacrificed its workers to appease the gods of Wall Street.

At American Express, spending by the company’s cardmembers is growing, and so are revenues and profits. But not payroll: American Express just surprised financial markets by announcing plans to slash 4,000 jobs, cutting the number of employees by 6%.

At eBay, the planned job cuts, announced days ago, total 7% of the workforce, or 2,400 individuals, and come despite a 9% jump in profits and a 12% increase in revenues.

Indeed, even before January has drawn to a close, one calculation puts the number of jobs lost in large-scale layoffs at more than 32,000.

Compared to the 252,000 new jobs that were created in December, that isn’t all that dramatic, of course. And Joseph LaVorgna, chief US economist at Deutsche Bank, isn’t ready to sound any alarm bells just yet.

“January is the worst month of the year for layoffs, and an increase in layoffs would be very normal after the kind of seasonal uptick in hiring that we tend to see in the fourth quarter,” he says.



“Even when things are normal, employers still lay off a total of about 300,000 people every week, or 1.2 million people every month. It’s a staggeringly large number.”

The difference is that this time around, the layoffs are large enough, and coming from large employers – American Express, Coca-Cola, US Steel – that don’t seem to have a compelling financial reason to slash jobs.

These announcements also are coming in the wake of the celebratory tone of President Barack Obama’s State of the Union address last week. The president, while announcing myriad initiatives revolving around the theme of “middle class economics”, rejoiced in the recovery and the fact that the unemployment rate now stands at only 5.6%.

Hold off on the celebrations. Even with a slightly friendlier Congress, only two of the 18 items he proposed last year made it through – and that list was far less ambitious.

But one passing remark during the president’s speech served as a reminder that there’s a limit to what government can do – and the American Express and eBay layoffs, in particular, served as a forcible reminder of this.



“To give working families a fair shot,” the president said, “we still need more employers to see beyond next quarter’s earnings and recognize that investing in their workforce is in their company’s long-term interest.”

Consider American Express. From a distance, one would say this is a company that is doing just fine. Its profits for the fourth quarter rose to $1.45bn from $1.31 bn and beat analysts’ forecasts.



The problem? Amex had promised its investors that revenue would grow 8%, and it grew only 6.6%. Management knew investors would be worried and irritable. American Express’s share price has fallen nearly 7% in the past 12 months, while the rest of the market has boomed: the Standard & Poor’s 500 stock index has gained 12% in the same time. Ouch.

Something similar is afoot at eBay, where growth simply isn’t what investors want it to be. “Investing in the workforce” would seem to be out now that a member of activist investor Carl Icahn’s team has a seat on eBay’s board. Icahn seeks companies who should be cutting costs and making more profit in a relentless efficiency that will raise their stock prices. “Cost cuts” usually come at the expense of workers first.



At least some of the other layoff announcements can be explained by company- or industry-specific headwinds. Over at Coca-Cola, for instance, corporate cost-cutting will take the jobs of between 1,600 and 1,800 employees, but this is amid declining sales of sugary soft drinks and warnings that the company will continue to outright miss profit targets this year. (Coke’s third-quarter profits fell 14%.)

At DreamWorks Animation, some 350 employees, or 15% of the workforce, may soon be unemployed, since new releases like Penguins of Madagascar haven’t had the same power with audiences that powerhouse franchise Shrek did in yesteryear.

Facebook Twitter Pinterest Officials from North Dakota’s oil-producing region pleaded with lawmakers Friday to expedite hundreds of millions of dollars so infrastructure projects can begin by this summer. Job cuts are expected to hit oil and shale companies hard. Photograph: Mike McCleary/Bismarck Tribune/AP

Job cuts because of plunging oil prices



Then there’s the oilpatch, where plunging crude oil prices are only starting to take a toll on jobs.



Right now, it’s the oilfield services companies – the folks who drill the wells and manage the rigs – who are taking the brunt of the hit, as production companies slash drilling budgets.



Even though Schlumberger still reported quarterly revenue growth, it took big writedowns on its fourth-quarter earnings in anticipation of problems to come, and announced plans to cut 9,000 jobs. Baker Hughes followed that with its own announcement, days later, of 7,000 planned job cuts. These won’t be the last layoffs by these companies – or in the energy industry as a whole.

Deutsche Bank’s LaVorgna isn’t worried (yet) by what any of this says about the health of the broader economy, or even about the unemployment rate.



However large those Schlumberger and Baker Hughes job cuts are in total, he notes that the energy industry is a tiny fraction of the US economy in terms of jobs. “If you strip out the people who work at gas stations, it’s less than 1% of total employment,” he says.



Losses there, he calculates, will more than be made up for by hiring in the many industries that will benefit from lower energy prices, including housing and the automotive sector.

“While the company-specific anecdotes that people are talking about are important, it’s more important to look at the aggregate data, which is all-inclusive,” LaVorgna adds.



Facebook Twitter Pinterest The chairman and CEO of American Express, Kenneth Chenault. The company missed its promises of revenue growth and is cutting workers in response. Photograph: Larry Downing/Reuters

But hiring is still afoot



In other words, for every big employer who decides to axe a few thousand employees, there may be dozens of smaller to mid-sized companies who are adding to their rosters, incrementally.



They don’t issue press releases when they do so – it’s the last thing they would want to do, since that would drive up wage demands by both employees and candidates – but the steady, slow decline in the unemployment rate suggests that that is what is happening.

Could these big, high-profile layoffs spell trouble ahead nonetheless? Sure, as LaVorgna readily admits. Right now, the number of Americans filing initial unemployment claims is hovering at around a seven-month high; as of 17 January, the weekly total was 307,000. It’s been higher – 317,000 claims the previous week – but the fact that the total remains north of 300,000 again is disconcerting to economists.



“If it got to 330,000 or 340,000, that would get me worried,” LaVorgna says.

But as those who have studied the unemployment trends in America since the 2008 financial crisis and the recession will tell you, from pretty much every perspective except the purely abstract, it’s about more than the aggregate data. Even though the unemployment rate is now only 5.6%, that masks the fact that youth unemployment is more than twice as much, and for African American youth it is north of 20%.

As President Obama pointed out, the devil is in the details. He can propose policies like raising the minimum wage, or giving working couples more money for childcare. He can’t create jobs, or order companies to create jobs, or even suggest that it might be a good thing for the country as a whole if enough Americans were employed and earning a living wage to be consumers of the goods that all of these companies produce and try to sell us.



But ultimately, it’s all up to the private sector. Only they can stop viewing employees as little more than just an annoying cost center.