And it’s reaching far beyond energy.
Turning points in the vast US labor market rarely come with a big drumroll that no one can miss. Instead, they wedge themselves into the rosy scenario bit by bit, here and there, posing contradictions where none are expected. And today, we got one of those contradictions: unemployment claims v. job-cut announcements.
The number of people who applied for unemployment insurance during the week of March 20 to 26 rose by 11,000 to 276,000, the Labor Department reported today. While up, these initial claims are still near the low of 253,000 established on March 5, which had been the lowest level since the late 1960s!
So even at 276,000, initial unemployment claims are still very low by historical standards. Red flags go up when claims jump well above 300,000. Serious fretting begins when claims hit 400,000. That’s a sign that laid-off people can’t find new jobs and are filing for unemployment insurance to tide them over. It’s a sign that layoffs by one company can no longer be absorbed by other companies.
Companies have already started laying off people. The announcements and rumors bubble up on a daily basis. And today, the Challenger Job Cut Report confirms it in a chilling way.
In March, job cuts announced by the largest US-based companies soared 31.7% year-over-year to 48,207. The fourth month in a row of year-over-year increases. Up 40% from March 2014.
Job-cut announcements in the first quarter jumped to 184,920, up 32% from 2015, and up 52% from 2014.
These are not minor increases. And they only include the largest US-based companies that announce layoffs to the media. They do not include smaller companies that might be trimming their payrolls quietly.
In Q1, about 50,000 job-cut announcements, or 27% of the total, were “attributed to falling oil prices,” as the report put it. That includes companies such as manufacturers that supply the oil sector. Last year in Q1, “oil-related” job cuts had reached 47,610, or 34% of the total.
This shows that the oil sector is still shedding jobs manically, but other sectors have now jumped into the fray in significant numbers. As the report put it: This “upward trend outside of the energy sector is somewhat worrisome.”
Beyond oil is the larger energy sector, which includes coal that is careening company by company toward bankruptcy, but it doesn’t include industries that supply it. In energy, job cuts reached 52,901 in Q1, up from 37,811 last year.
Then there’s retail — brick-and-mortar retail which has been getting whacked by the shift to online retail in an environment of lackadaisical retail spending. And so the retail sector responded with 31,832 announced job cuts in Q1, up 41% from last year.
And job cuts in the computer sector in Q1 soared by 148% year-over-year to 17,000.
The hardest-hit state is Texas, with 60,350 job cuts in Q1, more than all the job cuts in the energy sector in the US, another sign that the oil bust is seeping into the broader Texas economy. This is no longer a blip, but a new reality [read… Consumers in Texas Hit by “Negative Ripple Effects”].
Arkansas, with a population of only 3 million, is in second place with 16,200 job cuts in Q1. That hurts! California, with over 12 times the population of Arkansas, is in third place with 14,198 announced job cuts, which barely produces a ripple in the big state.
The fact that job cut announcements are rising – just the last two days, we’ve heard from Boeing laying off 8,000 and BlackRock 400 – is one of the early signs of a turning point in the labor market. With business revenues and earnings slumping, and with productivity down, companies are reacting, but they’re not panicking yet, at least not outside the energy sector. Outside the energy sector, they’ve taken out the scalpel and they’re carefully trimming here and there to bring expenses down.
But the energy sector is in panic mode. The entire sector is laying off. So a specialized engineer or oil field worker — very well paid when they still have jobs — is going to have a hard time finding an equivalent job. And this is hitting Texas particularly hard.
There is a fairly long delay, however, between announcement and actual layoffs. After the job-cut decision and the announcement, a company has to sort out who has to leave and what severance packages, if any, they get. If it is “voluntary” via “buyouts,” people are given time to decide. The to-be-laid off people often don’t know for months about their fate. Others know but hang on to their jobs for months.
So the impact of the current job-cut announcements will be felt later. For now, companies outside the energy sector have been picking up laid-off workers fairly rapidly, and the initial unemployment claims remain low. But as more companies start laying off, fewer continue to hire and fewer of the laid-off people get hired right away. This is when the currently tepid signs of deterioration in the labor market heat up.
And that crucial link between business sales and jobs? It’s becoming a real party pooper. Read… And this is When the Jobs “Recovery” Goes Kaboom