A sort of sector rotation of layoffs, and it’s not a good sign, even as millions of lower-wage workers are being hired back.
By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT. You can listen to it on YouTube or download it at Apple Podcasts and others.
At first the job cuts hit lower-level employees at retailers, hotels, restaurants, gyms, movie theaters, and the like. At retailers alone, over one million people got sacked in April. And then retailers started trimming their corporate jobs. Then airlines, constrained by the bailout package they took under the CARES Act, offered voluntary buyouts and early retirements.
Innumerable companies have quietly laid off workers. Many companies have shut down. And all the suppliers to the industries that were hardest hit were also hit, as the problems spiraled up the supply chains.
By July, after many of these businesses – those that were still around – had already re-opened, there were over 32 million people collecting unemployment insurance.
Early on in the Pandemic, big tech companies said that they would not lay off people for now. But they slowed their hiring or stopped hiring.
So restaurants have been reopening and they’ve hired back some of their staff, though many remain closed, and a portion may never reopen in their prior form. And retailers have reopened some of their stores and rehired staff, but many stores were permanently shuttered. Gyms and movie theaters are trying to reopen under immense difficulties, as are barbers, hair salons, nail salons, and the like.
While millions of these lower-paid employees are now being brought back – and we see that happening everywhere – a whole new wave of layoffs has been building momentum. And now it’s well-paid jobs with decent benefits at big companies, including tech companies, that are being shed. We got a dose of those big-company layoffs over the past few days.
Salesforce confirmed rumors that it was laying off 1,000 employees later this year. Back at the end of March, it had said that it wouldn’t do any layoffs for 90 days. Those 90 days expired about two months ago, and so now, it’s time to cut costs and shed employees.
Not so ironically, the news came the day after Salesforce beat earnings expectations for the quarter, and its shares skyrocketed 26% in just one day. Any layoff news is always welcome on Wall Street – the bigger the better – as a sign of cost cutting and improvements in earnings per share.
On Friday, Coca-Cola Company, which had been hit by a 28%-plunge in second quarter revenues, announced that it would offer voluntary buyouts to about 4,000 employees with some seniority in the US, Puerto Rico, and Canada, and that it would lay off other employees. It also said that it would trim and reorganize its corporate structure by replacing 17 existing business units with just 9 new business units.
Logistics giant and freight broker C.H. Robinson added a new spin to the theme of not-bringing-back furloughed workers: In April it had said it would temporarily furlough 7% of its workforce or about 1,000 people. But now it turns out that it won’t bring back hundreds of them because their jobs had been automated during their absence. And those jobs disappeared permanently, as the company told investors recently, and they would become, as it said “permanent cost savings from our investments in tech.”
Wells Fargo, which has slashed its dividend by 80%, is now trying to cut costs to please its shareholders. Early on in the Pandemic, the bank, like so many other big companies, had announced that it would put a moratorium on job cuts. It has now ended that moratorium.
A spokesperson, in confirming the rumors, told Bloomberg News that starting in early August, the bank “resumed regular job displacement activity.” They didn’t give numbers. But this may ultimately lead to tens of thousands of jobs getting cut over the next many months, sources said. In the statement, the bank told Bloomberg that it expects to reduce the size of the workforce through “attrition, the elimination of open roles, and job displacements.”
There is still a backlog of employees to be cut. Those job cuts were planned before the Pandemic, but then put on hold during the Pandemic. Then there are the additional reductions, the new ones, that include thinning management ranks. The ultimate scope of those cuts has not been decided yet, according to sources.
CEO Charlie Scharf told analysts during the earnings call in July, that “It’s like an onion: The more we do, the clearer the next round will become.” And so I guess these rounds are becoming clearer.
To the theme of temporary furloughs turning into permanent layoffs: On Friday, MGM Resorts, which has gotten hit by the collapse in tourism and the shutdown of casinos and other venues, and whose revenues in the second quarter plunged by 91%, said that it would lay off 18,000 workers in the US who’d been temporarily furloughed in March. That’s over a quarter of its workforce in the US.
Casinos in Nevada were allowed to reopen in early June, but gambling revenues in Las Vegas were still down nearly 40% in July compared to July last year. There are also social distancing requirements and capacity restrictions that make casino operations tougher to pull off. And MGM still hasn’t opened all its casinos.
In early August, NBCUniversal, a unit of Comcast, started cutting up to 10% of its workforce across its broadcast and cable-television divisions, movie studios, and theme parks.
AT&T, which owns the Warner Brothers studio and cable channels HBO, CNN and TBS, has also started slashing its workforce.
Stanley Black & Decker announced at the end of July that it would lay off 1,000 people and make those layoffs permanent, while reversing the furloughs of 9,000 people and bring those people back. The company is benefiting from the home-improvement do-it-yourself craze that has started during the Pandemic. While part of the company’s business was down, the retail end of it, meaning sales in stores, jumped by 50%. And still, 1,000 permanent layoffs.
Also in July, LinkedIn, which is owned by Microsoft, announced it would lay off about 1,000 employees, as its business has gotten hit by the slowdown in hiring during the pandemic.
In terms of the airlines in the US, they already shed in one way or another many tens of thousands of workers between March and July. And now they’re busy announcing more staff shedding, either through layoffs or some sort of voluntary buyout or early retirement.
For them, October 1 is the big day when they’re free under the bailout package to lay off people involuntarily. Between American Airlines, United Airlines, and Delta, the additional cuts announced so far could amount to more than 55,000 employees.
The difficulties of the airlines business are translating into layoffs at a host of other industries, including manufacturers of aircraft, engines, and components.
Boeing said at the end of July that it is preparing a second round of buyouts this year. The 10% cut of its workforce unveiled in April wasn’t enough, amid a flood of cancellations of its key product, the misbegotten 737 MAX.
Raytheon said at the end of July that it cut 8,000 people in its commercial aviation division, which makes jet engines and airliner systems. General Electric had already announced in May that its aviation unit would cut 13,000 jobs.
Oil-and-gas drillers and oil-field services providers have been cutting jobs in massive numbers, amid a surge of bankruptcy filings, as both demand and prices collapsed. A month ago, Schlumberger, the giant US oil-field services provider, threw another 21,000 job cuts on top of that pile.
So this is now a mix of new job cuts, and temporary furloughs becoming permanent layoffs. Goldman Sachs estimated that nearly a quarter of US workers that were temporarily furloughed probably won’t be called back. That’s millions of people.
Many of these big-company layoff announcements take time to become actual layoffs. An announcement in August may lead to actual layoffs weeks or months later. But other layoffs, especially by smaller companies, come to light when they’re already happening, or they’re just happening quietly.
Outplacement giant Randstad RiseSmart released a survey a few days ago of human resource executives in 20 industries that found that nearly half of US employers who have already furloughed or laid off staff as a result of the Pandemic are considering making additional cuts over the next 12 months.
So now, this is no longer a knee-jerk reaction to a sudden Pandemic, lockdowns, and a collapse in demand. Now it’s methodical, systematic, carefully planned, and calculated. Now companies are looking at data and projections, and they’re going through their workforce with a fine-toothed comb to trim jobs and costs.
And we’re seeing this in the numbers. Over the past four weeks, nearly 7 million people filed initial unemployment claims under state and federal unemployment insurance programs.
This means that over the past four weeks, nearly 7 million people, who were eligible for state or federal unemployment insurance, got newly laid off. That’s a huge and catastrophic number.
And it includes the kind of layoffs I mentioned – well-paid jobs at big companies, in carefully orchestrated and calculated moves, based on projections where their business is heading over the next few years. These companies don’t permanently lay off that number of people just to get over a three-month dry spell. There are now some long-term thinking and projections involved here.
Over the same four-week period, the total number of people on unemployment insurance dropped by 4 million, from 31 million to 27 million. This means that four million more people got their jobs back than were newly laid off.
But many of those people who got their jobs back are working in retail and restaurants and in the lodging industry, in the lower-paid end of the services sector. And at the same time, big manufacturers, tech companies, airlines, companies in the entertainment business, and the like are now slashing jobs in large numbers.
It’s sort of a sector rotation of layoffs, with layoffs rotating into industries with higher pay and decent benefits, hitting many of the people that had been spared in the early months of the Pandemic. And this is another bad twist the Pandemic economy is serving up.
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