Wednesday, April 1, 2009

Corporate layoffs moderate

Here's a nugget of good news: a two-month decline in corporate layoff announcements. This is consistent with my view that the worst of the economic news hit sometime around the end of last year. Things are still bad, of course, but they are not deteriorating, and that's important, because markets are still priced to the expectation that we will shift from what is now a bad recession into a depression. So far I see no evidence of that occurring.

5 comments:

Paul said...

I asked the guy who runs our office branch what the situation with layoffs is. He told me business has finally sorta stabilized, but we are still over-staffed. He said the reason they haven't laid off more people is due to some tax reason regarding severance pay. Went over my head. The upshot is, because of the previous massive layoffs, it would actually cost more to lay off more people than keep them for awhile longer. Sounds crazy, I know.

Anecdotal, but it's a large corporation.

Bernard said...

There seems to be quite a dispersion of forecasts.

"Posted by Tyler Durden at 11:08 AM

Seems people are fascinated with this presumed ISM "bottom". Some thoughts on that phenomenon per the Rosenbergs.


Manufacturing sector remains depressed

The ISM manufacturing index rose slightly to 36.3 in March versus 35.8 in February. This was in-line with consensus estimates but higher than BAS-ML expectations. This reading is still consistent with a large contraction in manufacturing activity over the month and at levels that continue to depict a sector mired in recession. New orders staged a notable increase but at 41.2 reflect a large pullback in demand and suggest that additional downside is in store going forward. Little improvement was seen in the production, employment, export or import order indexes which all remained at depressed levels.

Inventory correction to weigh on future ISM readings

The inventory index posted a significant 4.8 point drop suggesting that manufacturers are paring back stocks – not surprising given that inventory-to-sales ratios still stand at 12-year highs. Furthermore, the “customer inventories” index posted a 3.0 point increase to 54.0 signaling that companies continue to carry uncomfortably high stocks. Together, these moves point to ongoing cutbacks in orders and production in the months ahead as manufacturers attempt to restore more of a balance between inventories and demand.
And a little more on the unemployment context:

Job cuts catching up with service sector

The ADP employment report showed 742k private sector jobs were lost in March, much worse than the consensus expectation but closer to the BAS-ML forecast for 720k positions cut. The number suggests that Friday’s nonfarm payroll report will also come in worse than the current consensus forecast of -657k (BAS-MLe - 750k). This size of job losses also implies that the unemployment rate will come in above the current consensus forecast of 8.5% (we are at 8.7%). Job cuts continued to be deep in the goods sector at 327k, while job losses breached the 400k threshold in the services sector for the first time in this cycle, as the sector shed 415k jobs in March.

No sign of stabilization

In short the numbers tell us the economy is showing no sign of stabilizing. Of even greater concern is that in spite of these job cuts, unit labor costs are still rising as output drops at an even faster rate. This implies that we have not seen the last of -600k to -700k monthly payroll prints in this cycle. We continue to believe total job losses will top 3.5 million in 2009 – we have seen 1.3 million in January and February alone – and the unemployment rate will reach 10% by mid year. Moreover, given that the vast majority of these job cuts are permanent, dislocation effects – longer job search, retraining etc – suggest the unemployment rate will not come down any time soon.

Of course, optimists will say this is garbage, and pessimists will call optimists idiots, with both camps likely not reading any of the above at all."

utahcribs said...

Thank goodness, I will forward this on to my local media here in SLC, UTAH. I am getting tired of all of the negative news. I agree with your assessment, we are starting to see an uptick in business. I think people sitting on the fence and waiting for the end of the world to happen, have come to the realization that just maybe life goes on.???

Tin said...

"but they are not deteriorating" -- really? Perhaps you meant to say "but they are not deteriorating as fast as they were a few months ago, and might POSSIBLY be near the bottom".

Until things start heading up, they're still heading down.

Scott Grannis said...

Tin: layoffs are not increasing, they are in fact decreasing. That counts as a positive in my book. There will always be some positive number of layoffs, but the less the better.