This year is shaping up to be the best year for announced mass layoffs since 1997. Overall, employers aren’t shedding lots of jobs, and on the surface, there’s nothing perturbing in the job cut report by Challenger, Gray & Christmas.
In October, employers announced 45,730 layoffs, up 13.5% from September, but down by 4.2% from last year, the first year-over-year decrease in five months. For the ten months so far, 433,114 job cuts have been announced, down about 600 from last year, and last year too had been the best year since 1997. But the glitter of the overall numbers, caused by strength in some sectors, covered up aggressive job destruction in other sectors – where the sky used to be the limit
The pharmaceutical sector was hit by the most layoffs in October. With 10,585 job cuts, it was the sector’s largest one-month loss since July 2011. In both months, not so ironically, the vast majority came from just one pharmaceutical giant, Merck, which, like our other Big Pharma heroes, has been dogged by the loss of patent exclusivity, declining sales, and deteriorating profits. For example, sales of allergy and asthma drug Singulair plunged 80% in the second quarter as generics had come on the market. So in early October, it announced that it would axe 8,500 employees and restructure its research and development operations. Those layoffs were on top of the 7,500 previously announced. In total, it was getting rid of 20% of its workforce. Year to date, Big Pharma shed nearly 20,000 jobs.
In health care (other than pharmaceutical), the job shedding continued unabated in October, with announcements of 6,817 layoffs, bringing the total for the year so far to 47,902. Together with pharmaceuticals, total layoffs so far this year jumped 68% to 67,409!
This was an industry that not too long ago was on a hiring binge, with unlimited growth potential, in a nation that spent more per capita on health care than any other. Health care was about the only sector that was hiring during the great recession! A couple of years ago, industry hype figured that it would soon account for 20% of GDP, and more. Only the sky would be the limit. And it would bankrupt the nation.
Then something happened. The nation didn’t want to be bankrupted, not by health care.
“The health care sector continues to experience heavy job cutting in the face of shrinking Medicare reimbursements under the Affordable Care Act as well as federal spending cutbacks imposed by sequestration,” explained Challenger CEO, John Challenger. He further noted:
The increased cuts we have seen recently are probably just the beginning. If there is one thing, both political parties agree on, it is the need to somehow slow the sky-rocketing cost of health care. While they disagree on how to achieve that goal, the fact is that, regardless of what path is taken, lowering health care costs is likely to force health care providers to reduce their headcounts.
A sea change from a few years ago.
Then there was the financial sector. It got hit once again in October, with 8,717 layoffs, the highest since February when the sector axed 21,724 jobs. So far this year, the sector announced 57,591 job cuts. More than double last year’s layoffs!
Largest culprit in October: Bank of America. It would lay off an additional 4,000 employees in its mortgage unit, on top of the 9,000 announced during the third quarter. In total, 13,000 so far. The refi business, a highly profitable no-risk no-brainer for banks, has collapsed with stunning speed since May. And purchase mortgage applications are stagnating compared to last year, leaving overall mortgage applications down about 50%. Plus, the pile of rotten mortgages on BofA’s books, given that it’s been five years since the financial crisis, has been partially cleaned up, and fewer people are required to poke through them.
BofA is not alone. Number one mortgage lender, Wells Fargo, announced over 6,200 layoffs in its mortgage division. JP Morgan and Citibank also announced thousands of layoffs. Smaller banks too are trimming their mortgage units. And the bloodletting doesn’t appear to be over just yet. But those mortgage-related layoffs started in early summer, and banks have been shaving jobs all year from other units too.
The industrial goods sector wasn’t far behind. Mass layoffs for the ten months almost doubled from last year to 46,662. Retailers have promised a lot of seasonal hiring, but they too have announced mass layoffs, 37,032 so far this year, up 18%, as they’re struggling with flaccid demand.
But other sectors picked up the slack, and their layoff announcements fell sharply, including automotive, consumer products, education, energy, transportation, and computer. In Silicon Valley, it has been a veritable bubble: companies with no hope of revenues but lots of funding go on all-out hiring binges.
The scarcity of layoffs in these sectors covers up the deep holes left behind in the health care, finance, and industrial sectors, whose weight-loss programs appear to be permanent. That shift from one industry to another is not easily accomplished. Are these thousands of laid-off mortgage bankers suddenly going to write code for yet another photo-sharing app or drive trucks? Hardly. But they might have to change their profession if they ever want to work again, and in doing so, they might have to accept lower pay, the scourge that has bedeviled the job market for years.