Fewer Job Cuts in April But Sequestration, Consumer Spending Are Concerns

Posted May 02, 2013 by
John Challenger of Challenger, Gray & Christmas

John Challenger of Challenger, Gray & Christmas

Job cuts fell to their lowest level since December, as U.S. employers announced plans to trim payrolls by 38,121 in April, according to the latest report on downsizing activity released Thursday by global outplacement consultancy Challenger, Gray & Christmas, Inc.

April job cuts were 23 percent lower than March, when announced layoffs totaled 49,255.  They were 6.0 percent lower than the 40,559 planned job cuts announced in April 2012.  April represents the lowest job-cut month since last December, when 32,556 were tracked by Challenger.

Through the first four months of 2013, the pace of downsizing is virtually equal to a year ago.  Employers have announced 183,162 job cuts to date, which is only 0.27 percent lower than the 183,653 planned layoffs announced in the first four months of 2012.

“The economic slowdown that began late in the third quarter and is expected to turn into another summer slump has yet to result in increased or widespread downsizing.  The biggest concern is that consumers, who had been holding up the economy for so many months, are starting to scale back their spending as wages continue to stagnate,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

Consumer spending was up 0.2 percent in March, due primarily to increased heating costs during the unseasonably cold month.  Spending in other categories, such as household goods, retail and restaurants declined in March, according to the Commerce Department.

Retail did see the highest number of job cuts announced in April with 5,897.  That was down significantly from the 16,445 layoffs announced by retailers in March, but through the first four months of 2013, retail job cuts are up 64 percent from a year ago.  These employers have cut 31,297 jobs, compared to 19,056 at the same point in 2012.

“American’s wages are not quite keeping pace with increased expenses.  As a result, we are not going to see a big increase in consumer spending.  It is just as unlikely that we will see a significant drop-off in spending.  What is most likely is that consumers will simply shift their spending around,” said Challenger.

“This spending shift is evident in largest retail job cut announced in April, which resulted from the sudden closure of all Sears and Walmart portrait studios, which were owned and operated by CPI Inc.  The chain of photography studios was most likely undone by a combination of reduced spending and a dramatic change in the way people take and share pictures.  People no longer hand out wallet-sized pictures of their kids anymore; they take pictures with their smartphones and share them on Facebook and Instagram.  So, they shift their spending away from portrait studios and toward the latest smartphone or tablet,” said Challenger.

While retail was the top job-cutting sector of the month, the heaviest downsizing occurred in sectors that are not influenced by consumer spending.  Health care, industrial goods, transportation, and aerospace and defense represented the remaining top-five job-cut sectors in April, accounting for 13,766 job cuts or 36 percent of the monthly total.

Aerospace and defense firms announced 2,927 job cuts last month, more than 65 percent of which (1,928) were attributed to federal spending cuts or concerns over sequestration.

“Most private-sector firms have not been directly impacted by sequestration yet, due to the fact that government contracts are typically assigned well in advance and may be months or years away from completion.  However, as we can see by early job cutting activity, companies are already taking steps to address the impact of future spending cuts,” said Challenger.

“Another industry that must constantly look ahead and adjust workforce levels is the pharmaceutical industry.  Last month, these firms announced 1,517 job cuts, bringing the year-to-date total to 4,702.  Many of these workforce reductions are related to the fact that drug makers have products that will soon lose their patent protection and enter the generic market.  While they may have other products in the pipeline, most companies are not going to continue to support an idle sales force during the lag time,” said Challenger.

Such was the case with pharmaceutical company Eli Lilly, which announced job cuts in April.  Additionally, Illinois-based AbbVie, a spinoff of Abbott Laboratories, is expected to formally announced “hundreds of layoffs” as medications lose patent protection.

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