Challenger, Gray & Christmas, is an executive outplacement firm headquartered in Chicago. Outside of conducting executive outplacement work for companies, Challenger produces dozens of studies on layoffs, productivity and on other employment issues. One of the most watched is the monthly Job-Cut Report which is based on both announcements of corporate layoffs and mass layoff data from state departments of labor. Detailed methodological information on the Challenger report are limited, but the report itself provides highly detailed data, with layoffs by state, industry and reason all provided.
According to the September report, monthly job cuts surged in August as employers announced plans to cut payrolls by 50,462, the highest figure since February, and 57 percent more than at the same time last year. According to the report, workforce reductions were dominated by the industrial goods sector. Manufacturers announced 22,162 job cuts which nearly surpasses layoffs announced by industrial goods manufacturers in all of 2012. While this is not good news for the economy, according to John A. Challenger, the cuts were driven by losses in the mining equipment sector.
The fact that one sector can lead to such a massive fluctuation in the Job-Cut Report highlights one of the weaknesses of the Challenger data. Not only are the figures not seasonally adjusted, but they are based almost exclusively on announcements which tend to be made by large companies. It doesn’t distinguish between job cuts that occur through attrition or actual layoffs, nor does it include cuts eliminated in small batches. These weaknesses mean that most economists do not generally put much stock into this particular report.
Even so, the fact that large companies are announcing layoffs is tied to the overall “animal spirits” of the economy. If a lot of large businesses are announcing layoffs, smaller supplier firms think twice about investment decisions, and if the layoffs come from name brand firms, and receive media attention, they can lead to reductions in consumer confidence. Both of these things will impact the larger economy. As such, the overall size of layoffs (particularly year over year comparisons) can provide some indication of future economic activity. Longer term trends in the data are less reliable. In fact, reported layoff numbers in recent years are well below those announced during the mid 2000’s when the economy was growing at a strong pace.
Overall, the statistics on employment in the US economy continue to be mixed at best. While there is some limited job growth, income has been flat suggesting that wages are falling. Part time employment is rising compared to full time jobs, and the labor force is shrinking at a faster rate than demographics suggest it should. None of this bodes well for either future grown or future job growth since the economy is likely half way through the next business cycle, and will unlikely experience rapid growth prior to the onset of the next recession.