Challenger Job-Cuts Report Review

by: Markos Kaminis

Light Layoffs May Lie

The releases of the latest data from ADP and Challenger, Gray & Christmas yesterday morning offered a negative message that was overshadowed by positive data from China. However, we feel investors should pay attention to our insight as Friday's Labor Department report queues up.

Net net, we found Wednesday's labor data worrisome. Where a nominal improvement in announced corporate layoffs enthused some, we were mostly unimpressed. While we hope the slow pace of firings portends positive things for the job market, we worry it's just another case of corporate managers lacking foresight.

Challenger Job-Cuts Data

With the market rising, the popular press attached a powerful positive note to the Challenger data Wednesday morning. However, the report really only offered moderately positive good jobs news.

Planned monthly layoffs eased to 34,768 in August, which compared favorably against just about any historical record. August's declared layoffs were in fact the lowest in a decade, but that news is not as impressive when we look at the numbers. July's layoff record showed 41,676, and June's listed 39,358. While it's certainly nice to see the lowest number of firings in such a long span, the numbers do not vary all too much from recent trend. That said, the result tells a story when compared against last August's count of 76,456. And as far as the year goes, Challenger reports year-to-date total declared layoffs of 374,121, 65% less than last year.

It's important to remember that less layoffs do not necessarily translate into more hiring, though there certainly should be a relationship between the two. Perhaps this activity would precede new hiring. Still, the data-point is not a strong positive economic factor for long-term forecasting, when found in the absence of significant economic growth.

When comparing August against any other month, we need to remember that it is perhaps the slowest month for economic activity in America, if not July. Just as you likely vacationed this month, so did corporate executives, middle managers and human resource representatives, and so there is clearly going to be less discretionary layoff activity in August. We suggest investment enthusiasts wait to see how September and October shape up before popping the champagne corks.

We can't neglect the good jobs news here though. If layoffs are saturated, and if companies are operating at tight capacity, then we might be about as wound up for a growth driven jump in hiring as we could possibly be. That means that should economic activity find a catalyst, perhaps from China and friends, then job growth might soar.

Challenger reports that the government or public sector is the fastest flowing source of layoffs these days. The government and non-profit sectors have announced 112,378 layoffs this year so far, or roughly 30% of the total. This is understandable given the pending November elections and political unwillingness to raise taxes. Therefore, local and state governors are cutting costs, which means less police, firemen and workers at the local Department of Motor Vehicles. I just renewed my drivers license yesterday, and due to the loss of my photo card, had to sit behind 40 other people while 2 to 3 reps (they took a lot of breaks) covered the traffic. There were five empty desks, where servers might have been in the past. This is the trade-off we make for a balanced budget.

The most potent driver of job cuts in August was the industrial goods sector. This fits in with all the news we've been receiving about manufacturing, outside of today's gain in the ISM Manufacturing Index. Some 6,236 announced layoffs were derived from the sector in August. That said, the year-to-date total for the sector (16,962) pales in comparison to last year's number (101,591).

The greatest concern for investors should be the possibility that layoff activity reflects less, the tight employment state, and more, the inability of managers and corporate strategists to foresee a pending dip into recession, or at least a dragging stagnant economic state. We expect this is the case, since managers were late to start firing, and then overdid it once panic spread.

This article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical [OTC: ASRG.OB], Medical Connections [OTC: MCTH.OB], iGen Networks [OTC: IGEN.OB], St. Joseph [OTC: STJO.OB], General Employment Enterprises [NYSE: JOB], Total Neutraceutical [OTC: TNUS.OB], TeamStaff (Nasdaq: TSTF), Stratum [OTC: STTH.OB], Purespectrum [OTC: PSRU.OB] and Corporate Resource Services [OTC: CRRS.OB].

Disclosure: No positions

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