Mass Layoffs To Return With A Vengeance

News & Current Events Public News & Current Events
,
1

Remember the mass layoffs of 2008-2009? The US economy shed millions of jobs quickly and relentlessly, as companies died and the rest fought for survival.

Then the Fed and the US government flooded the banks and the corporate sector with bailouts and handouts. With those giga-tons of liquidity sloshing around, as well as taking on massive amounts of new cheap debt, companies were able to finance their working capital needs, hire workers back, and even buy-back their shares en mass to make themselves look deceptively profitable. The nightmare of 2008 soon became a golden era of 'recovery'.

Well, 2016 is showing us that that era is over. And as stock prices cease to rise, and in fact fall within many industries, layoffs are beginning to make a return as companies jettison costs in attempt to reduce losses.

Since January 1st, here is but a subset of the headlines we've seen:

Note that nearly all of these companies are in the Energy, Finance and Tech sectors -- the three biggest engines of growth, profits and market value appreciation within the economy over the past 7 years.

What will the repercussions be if those three industries go into contraction mode at the same time?

Whatever the specifics may be, the general answer is easy to predict: Nothing good.

This topic has particular relevance to me today, as my former employer Yahoo! just announced that it's cutting 15% of its workforce (1,700 jobs) and considering putting itself up for sale. This is no shock to me, as I've long publicly predicted Yahoo!'s inexorable swirl into irrelevance, but its timing is indicative of the new era the economy is now entering.

With its stake in Alibaba, Yahoo! participated in the mania that drove Chinese and other emerging market shares in 2014 through mid-2015. The capital that flooded into the Tech sector in general didn't hurt, either. Both of these helped mask the business' broken fundamentals and kept the day of reckoning for its lack of demonstrable progress at bay. But no longer.

As Warren Buffet famously quipped: Only when the tide goes out do you discover who's been swimming naked. Well, with the collapse of the Asian stock markets last year and the entire global market so far this year, the tide is fast receding and the rot at Yahoo! is now plainly visible to all. How much rot? During its earnings call yesterday, the company announced it's taking a write-down of $4.5 billion. That's nearly as much as it made in top-line revenue for all of 2015!

Yahoo! is one of the weaker players in Tech these days, and it's now stumbling hard. Here at Peak Prosperity, we predict that collapse happens 'from the outside in', where the weaker parties fall first, followed by the demise of stronger and stronger players. We've been seeing that happen internationally over the past year as smaller poorer countries succumbed first to slowing global economic growth, and we're now seeing larger and more developed countries become desperate (Japan, anyone? How about Italy?). Yahoo! is a similar harbinger for the Tech sector, and is being fast joined by the many Tech companies in the list of headlines above (by the way, there are *many* more Tech companies I could easily add to that list -- like HP who announced job cuts of 85,000 last fall).

And there's good argument to be made that mass layoffs in Tech will be worse today than back in 2008/9. Back then, there were fast-expanding private future behemoths one could jump to: Facebook, Palantir, Uber and the like. Even Google, Netflix and Amazon held up well and were still investing for growth during that period. Today, there is no ready stable of up-and-comers with similar potential to power through a recession.

The ability for those laid-off to find open positions elsewhere will likely be more similar to the 2000 Tech bubble burst. Working in Silicon Valley back then, I was amazed at how fast 101 changed from a crawling bumper-to-bumper experience to an uncrowded freeway. The number of jobs (and thus commuters) that vaporized quickly was astonishing.

And that's just Tech. As Chris has been warning us loudly, something is deeply amiss in the Financial sector. It's mind-boggling that the biggest of the "too-big-to-fail" banks, like Citibank and Bank of America, have lost 25% of their market value in a little over 1 month(!). Deutsche Bank has lost over 33% over the same short period. All while the general market is down about 8%.

What these prices are telling us is that something big, ugly and damaging is happening within the banking sector. We just don't know exactly what yet. And if you remember your history, this is eerily similar to how things went south so quickly in 2008. The banks started catching the sniffles, and soon after, Hank Paulson was on his knees begging Congress for the authority to stave off a full meltdown of the banking system.

And then there's Energy. Can it be that the price of a barrel of oil was over $70 just 10 months ago? And over $100 five short months before that? Yesterday it was below $30. As we've been warning about here at Peak Prosperity, the carnage that collapse in price is going to wreak across the highly-leveraged companies in the Energy sector is going to be biblical. Not to mention the many other sectors that service the energy industry (trucking, housing, retail, infrastructure development, etc). We are just beginning to see the very early-stage ramifications, but in the words of Bachman Turner Overdrive: You ain't seen nothin' yet.

Conclusion

My point here is that the worm has turned.

All the stimulus and intervention undertaken by the Fed et al gave us five pleasant years (2010-2014) of rising stock, bond and home prices that allowed us to pretend that the 2008 credit crisis was a one-time event.

2015 proved to be the year that reality intervened. The rocket ride we were on hit its zenith, and things hung precariously there.

2016 is fast proving to be the year that the laws of physics are starting to matter again, and our rocket is now beginning its descent back to Planet Earth. How far we fall this year vs next is still unknown, but the direction of the trajectory is becoming increasingly hard to dispute. And as we lose altitude, we're going to start losing jobs along with it.

So, for anyone reading this who is a salaried employee, a very important question to ask yourself is: Do I have a Plan B in place if I get unexpectedly laid off this year or next?

I'm not trying to frighten anyone unnecessarily. But I do see the probability of wide-scale jobs losses as materially higher this year than it was just a few short months ago. And with the headlines in the news today, things can easily accelerate further from here.

If you do not have a confidence-inspiring Plan B lined up yet, remember that the best time to plan for crisis is before it arrives. Spend time asking yourself what you would do in the aftermath of a pink slip. Save a greater percentage of your income, line up professional contacts, conduct informational interviews, and develop any needed new skills now -- so that if you ever do need to turn to them, they're already there to support you. A lot of the process for doing this is detailed in our book on career transition, and our related podcasts with career coach Jennifer Winn and the Johnson O'Connor Foundation are helpful resources, too.

Investing in the other Forms of Capital (besides money) that we detail in Prosper! will only help add to your resilience, as well. Especially Emotional Capital. Dealing with job loss is stressful by itself, but potentially doing so in the midst of another punishing Great Recession would place challenging strain on any of us. Working to improve our emotional ability to deal with setback, as well as perhaps doing the same with Social Capital -- ensuring you have a community to support you through any tough times -- just makes good sense.

 

 

This is a companion discussion topic for the original entry at https://peakprosperity.com/mass-layoffs-to-return-with-a-vengeance/

2

Adam,
Nice if depressing piece. Is there any prognostication on how job losses tend to ripple through the economy? Obviously, as an industry like energy slows down all of the feeder industries you mentioned "(trucking, housing, retail, infrastructure development, etc)" fall too, but is there a multiplier for restaurants, hotels, home construction and the service economy in general? All those bankers and tech people will be spending a lot less. White collar jobs lost mean how many other jobs become threatened? I see two ways of looking at the forthcoming layoffs. Since the people who have been hired back after the 2008 crash now have much lower salaries on average, the bang for the buck in layoffs could follow an out with the old  (higher paid peaople) to maybe someday be followed with an in with the new (lower wage) strategy. My brother's company where he works has done this over and over. The alternative is a need to lay off even more people to get the same cost cutting effect this time around since average incomes are lower. It takes more lay offs to reduce costs by a million or billion dollars. Obviously there are a lot of considerations in choosing how to proceed unless whole factories or stores are being shut down, benefits probably are a big part of the costs but since they are dropping year after year too…

Thoughts?

 

3

From a 2014 report on the 'recovery' the shifting of people down the wage ladder is evident. These are the people who ate most of the losses last time (together with those who dropped out entirely)

Lower-wage ($9.48-$13.33) industries accounted for only 22 percent of job losses during the downturn, but 44 percent of jobs gained over the past four years.  (Today, lower-wage industries employ 1.85 million more workers than at the start of the recession.)

§

Mid-wage ($13.73-$20.00) industries accounted for 37 percent of job losses, but only 26percent of job gains. (There are now 958,000 fewer jobs in mid-wage industries than at the start of the recession)

§

Higher-wage ($20.03-$32.62) industries accounted for 41 percent of job losses, but only 30 percent of job gains. (There are now 976,000 fewer jobs in higher-wage industries than at the start of the recession)

 
4

Oxymoron

5

I work in the trucking industry (manufacturing commercial truck parts) and since August, sales have fallen each month after and continue.  I do not see this getting any better any time soon and a shutdown is a real concern.

6

Older article, but still funny.
http://www.theonion.com/article/yahoo-back-on-top-after-purchasing-millions-of-13–32497

 

7

I don't see this ending well, I see a very difficult period coming. Economists simply have no idea how to deal with excess labour and how to keep those people alive. So far all they've been able to pull out of their hats as a "solution" is to foster economic growth to provide jobs, which is now ending, and the free handouts are now maintaining order. When the currency gets reset and those handouts can't be maintained, who knows what will happen.
I find it a tad revealing that the most fundamental economic measure of the whole "productive" workforce gets a grand total of ZERO discussion amongst economists and virtually everyone else thinking about economics – the number of hours the average person works per week.

Why is it that we have arrived at a standard work week of 40 out of 168 hours, or 24% of your life? Who has determined that this is the optimum ratio of work to leisure/sleep time that correctly balances demand for and availability of workers, and the flow of wealth through the economy to support the masses? Why has that number not changed in, what, a century? I don't know exactly when it changed from 6 to 5 days, it was so long ago.

Have the job-place conditions not changed enough since then that a 40 hour work week deserves reassessment? Why is absolutely no one talking about this, except for myself and Jeff Neilsen on Bullion Bulls Canada?

Is the fact that so many employers are cutting full time jobs and hiring part time telling us something about the appropriateness of a 40 hour work week?

We all know why there is a 7 day week, because that's how long it took God to create the world according to Christians and Jews and the 7th was the rest day. According to the Babylonians a week corresponds with lunar phases. This left 6 days to work and one to rest. Sometime after this some bright people noticed that machines were doing a lot of our work in the fields so the work day and work week were shortened. How long ago was that?

8

sigh

S&P 500 doesn't look like much next to The Thing…

                                                  

Edit: If anyone has the LTG baseline curve in Excel format, please let me know. Thanks.

9

I agree that changing the work week, is a notion that is worth considering, especially if done in the broader context of redefining work, career, life balance.  

As automation, deflation and wage arbitrage continue to attrit full time job opportunities,  I suspect we will see some interesting worker adaptations. such as  micro entrepreneurship and reinvigoration of  home economics, which was once the foundation of both a healthy household and a more self reliant one.  It is real work to run a' productive' household one that provides for many of the needs we now purchase. The sooner our culture can rediscover the value in that the better off we will be.

I don't think we will see any sort of top down encouragement to a cultural shift away from the the 'modern' normal of specialized outsourcing of functions that used to be performed at home,  and I'm sure we won't see any enlightened government policy that could encourage better allocation of jobs and work. 

Those types changes will need to come from the bottom up and will probably accelerate as safety nets and transfer payments decrease.

I certainly wouldn't look to traditional economists to figure out anything relevant in this regard either, they are working from such an abstracted and artificial view of reality, they offer only marginal utility.

With regards to the trend towards part time work vs full time is I suspect this is more likely a function of the perverse incentives of regulatory overreach, prime example being  the Affordable Care Act.

 

Mememonkey

10

[quote] Is the fact that so many employers are cutting full time jobs and hiring part time telling us something about the appropriateness of a 40 hour work week? [/quote]
One factor in the shift in my part of the world is that part time jobs tend to come with fewer benefits.

If two staffers working X hours each cost a business less than one staffer working 2X hours, that's going to push a trend.

[quote] how long it took God to create the world[/quote]

Q: How was God able was able to create the world in 6 days?

A: Because there was no paperwork back then.
 

11

More of the same…

Shell confirms 10,000 job cuts and a steep profits fall

Royal Dutch Shell has confirmed it is cutting 10,000 jobs amid its steepest fall in annual profits for 13 years.

It made $1.8bn (£1.23bn) for the fourth quarter of the year, compared with a $4.2bn profit for the same period the year before.

Full-year 2015 earnings, excluding identified items, were $10.7bn, compared with $22.6 billion in 2014.

12

Where do jobs get hit first?  This is what it looked like in 2007.  Note this is a rate-of-change y/y chart, so job losses are only happening once it crosses the 0% line, but the growth trend changes a year before that.
The Nonfarm Payrolls report due out on Friday should provide us some more information.  Market's reaction should also be instructive.  I don't think "bad news" will end up being good news in this case, though of course I've been thinking that for the past few reports now.

13

The standard run model in Limits to Growth book did not put exact dates on the x-axis as you have shown in your post.  It was felt very important by the authors not to fall into the trap of making exact date predictions but instead model general behavior of the system over time.  I urge you to remove them Time2Help or to clearly state that the dates you put on the x-axis are purely your predictions and not the book's.  
 

Please don't take this the wrong way, Time2Help.  I'm not attacking or disagreeing with your comment in any way. I'm just passionate in making sure this seminal book is not misrepresented. 

 

 

 

14

We're hearing a very similar story in key area on this side of the Atlantic, starting with North Sea oil, where the lays offs are gathering pace.
But there is a bright spot, which is renewable energy. Having worked in the sector for the last 5 years, its gathering pace. Offshore renewable energy, my sector, is particularly exciting as a frontier industry, with so much potential energy to tap into, just as long as we ensure that we don't squander the oil that we need to exploit the opportunities on frivolous consumption for the discretionary industries profiteers.

15

Adam, I saw the same alarming drop-off in traffic in the NYC area in 2008-9. And I've been following the misadventures of Yahoo's pathetic excuse of a CEO while thinking how glad I am you are no longer there. The proverbial tide is out and the company is not only swimming naked, it's visibly sick.
Note to all: If there is even a slim chance of a layoff, being ready with an updated resume helps. Even though my husband has a NICET certification, which is so rare he's pretty secure in getting a job, and brings is half a million in annual maintenance contracts so he is in no danger of layoff, we're updating his resume. I can help with that if people PM me.

Also, multiple income streams are good. See if you can make some money on the side! I make a little in royalties and increasing amounts editing, but maybe you could fix cars or computers or watch a child while a parent works.

Combining households saves money. Parents are moving back in with children,; children are moving back in with parents, brothers and sisters are living together. I hope everyone who wanted to sell and move has done so, because this is downturn is going to hurt, if not decimate, real estate.

 

 

16

I thought that Jorgen Randers was way too nice a person to rub our noses in the inevitably of  the prediction and that caveat was put in to try to soften the blow.
The CSIRO compared the LTG prediction with real world data here (PDF) and the x axis looks accurate. 

 

https://www.google.com.au/url?sa=t&source=web&rct=j&url=http://www.manicore.com/fichiers/Turner_Meadows_vs_historical_data.pdf&ved=0ahUKEwigtPOHlt7KAhXMKZQKHQczCy8QFgglMAU&usg=AFQjCNEDU00NDwO0hiIB1YyF3ZbkMyRMgA&sig2=c4XRL6Qf5taK4Qw9OsnKDw

17

Your opinion is duly noted, and ignored.

18

RE: Mark C's low-wage recovery: who do you downsize first? the people making $10/hour or the ones making $60/hr? If the $60/hr person is generating huge revenue, you keep him/her, but if they're in HR, admin, etc., they start looking like redundant fixed costs once losses start piling up. Closing entire divisions starts looking attractive, too. Slash and burn…
Let's also not forget that local govt has gorged on higher property, income and sales taxes for 7 years, and once revenues crater, slashing  payrolls (70% of local govt costs) will be Plan A, B and C because local govt cannot borrow money to fund general fund daily operations. 

We know that the top 10% of households earn about 50% of the income and their spending has propped up a lot of the "recovery" sales in discretionary spending–clothing, tourism, eating out, etc. The top 10% includes many people with wealth, but it also includes many people who have saved very little, and what they do have is in IRAs and 401Ks trapped in the market. Their slide to insolvency can be very quick once one high-earner loses their job and can't find another equally lucrative position in a few months.

Many of these people are vulnerable to a downturn because they own/operate small businesses in discretionary spending sectors–the ones that will get creamed as people cut discretionary spending. Others are sandwiched between kids in college and elderly parents–their seemingly big incomes are fully allotted every month, and one job loss will crumble the entire house of cards.

My point is that the upper middle class that's supported the 'recovery" with discretionary big spending is far more vulnerable to implosion/insolvency than is generally appreciated.

19

I managed to quit my unsustainable nonprofit job last year only to end up landing at a state agency that could get axed every 2 years when our state legislature meets.  I didn't take this job with the intention of working here forever but it's looking like making a career move anytime soon will be dicey to say the least.  I have no debt other than student loans and a little bit of money saved - unfortunately I will have to capitalize on those getting washed out in the job losses front when they need to cut loose of land/property.
I keep telling my family and friends to get ready but nobody wants to listen and nobody really understands my constant anxiety over where things are heading and what I'm not really able to do about it right now.  

Living in Texas everyone likes to think we are immune to recession but when this trend combines with the delayed oil and gas fallout, this state is going to get HURT reallll bad.

 

20

Location, location, location! If you wish to profile a coming trend, just pick a relative industry and geographic area and do the analysis. I've chosen the Canadian oil patch, as it is something I know. Oil sector jobs -  down, house sales in head office cities - down, service sector jobs - down, pickup truck sales - down, should I go on? As with any economy entering a deflationary cycle, the middle class will feel the pinch, first. As their spending is cut back, lower class folks get hit hard and anybody carrying a pile of debt will, most likely, be headed for the cliff.
I think CHS has identified the key elements, only I don't think any of us have an idea of how severe and long ranging this situation may be. Many of you PP contributors are bang on in your observations. Well done. Where are you in the fragility/resiliency continuum? DIY may be the new acronym going forward.