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July job cuts surged 60%, according to Challenger, Gray & Christmas, but was the month’s deterioration due to resurgent illness within a sickly American economy or due to the isolated problems of a few large corporations. The issue is debatable, and so the report and topic garners a closer study this month.

Challenger Gray & Christmas reported on "Announced Corporate Layoffs" for July Wednesday morning, and the news was not good. Layoffs declared publicly by corporations in July were 60% more than in June, numbering 66,414 last month. The monthly count marked the third consecutive increase, and the second in a row that surpassed the prior year period. Layoffs gained some ground against 2010 on a year-to-date basis as well, reaching 312,220, versus the 339,353 seen last year through July.

Still, July’s big difference against the prior year was surprising, as June’s measure was just 5.3% greater than its counterpart. In fact, before June, the data had been relatively mild, posting some of the lowest results since the late ‘90s.

Indeed, the July surprise can be traced back to just a handful of responsible companies. Borders’ bankruptcy drove the loss of 10,700 jobs in July, which accounted for a great portion of the 11,245 jobs shed in the retail sector. Merck (NYSE:MRK) announced a multi-year reduction of 10K jobs, accounting for a majority of the 13,493 declared for the pharmaceutical industry in July. Cisco Systems (NASDAQ:CSCO) declared a reduction of 6,500 employees last month, which accounted for most of the computer Industry’s 7,970. Lockheed Martin (NYSE:LMT) announced a voluntary layoff program for 6,500 employees, which followed 2,700 traditional layoffs at the firm. Boston Scientific (NYSE:BSX) said it would look for savings through the firing of 1,400 employees. Goldman Sachs (NYSE:GS) worried Wall Street when it declared it would be letting 1,000 employees go in July. After the dust settled, the top five job cutters in July accounted for 38,100 workers or 57% of the month’s total layoffs. This had many strategists allaying job market concerns Wednesday, but perhaps market fears were warranted nonetheless.

After all, recent revisions to GDP, decelerating manufacturing expansion, deflating consumer confidence and spending are all tangible evidence of a stumbling recovery. Perhaps these few firms responsible for job cuts in July are simply the first to move, with more to come in an intensely competitive global marketplace geared toward return optimization and EPS maximization. Already in August, HSBC (HBC) said it would be letting 25,000 people go, matching a trend seen within many other global and international banks, including Credit Suisse (NYSE:CS), Barclays (NYSE:BCS), UBS (NYSE:UBS) and Lloyds (NYSE:LYG). Pfizer (NYSE:PFE) just reported earnings and said it would be cutting 5,530 employees away. Research in Motion (RIMM) did more than show off new phones recently; it said it would fire 2K folks or 10% of its workforce. So, perhaps July is not an anomaly, but rather yet another sign of the beginning of new deterioration in the economy and the labor market.

The private sector has served to offset weakness in government over the last two years, with Challenger noting another 9,389 government jobs cut last month. This took the annual total for the leading layoff segment to 86,980 year-to-date, and things don’t look to improve any time soon with budget cuts at the core of DC’s focus today. Also on Wednesday, ADP offered its estimate for an increase of 114K net private sector jobs in July. However, ADP’s credibility was severely tested last month, when it failed to foresee the dramatically short number of new jobs reported by the Labor Department.

It would seem that if the employment situation did not deteriorate further in July, when reported on Friday by the Department of Labor, it should in August. As of today, Bloomberg has the consensus forecast for the Nonfarm Payroll figure at an increase of 75,000 jobs, which would beat June’s pitiful 18K result. The range of estimates spans 30K to 125K, but based on a mosaic of economic, industry and corporate data that’s come in through July, it would seem the low end of the range carries more weight, if it has not overshot even.

The stock market’s deep correction despite the D.C. debt deal and signing off of Moody’s and Standard & Poor’s on the U.S. sovereign rating, shows how surprised market gurus, money managers and individual investors have been to discover the obvious. My observations from the streets of New York have been of a still troubled economy, with small businessmen barely getting by. Yet, I’ve also noted some recent improvement in the mood, and so there remains the possibility of a short-term speed bump being surmounted in the months ahead.

The key difference between the dog days of 2009 and thereafter have been the return of the employed consumer to consumption, but July’s debt debacle and European erosion may well have driven those stalwart consumers into a hole.

With the global economy so vulnerable, we can ill afford government error, and what we’ve seen at the EU and IMF and in Washington D.C. over the last few months, was pure example of government getting in the way. Hopefully the damage to the global economy can be overcome now, but if not, then we only have those representatives of ours to blame.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.