While the government's unemployment numbers are holding steady, the worst may be yet to come.
According to a report released today by outplacement firm Challenger, Gray & Christmas, Inc., of Chicago, the number of announced job cuts in July reached a high since the economic slowdown of 2001 began, with roughly 206,000 layoffs in the month.
That's the highest one-month total Challenger, Gray & Christmas has noted since it began keeping track of the monthly numbers in 1993.
Unemployment Figures Remain Level
However, the report comes on the heels of the Labor Department's monthly job report, released on Friday, which showed unemployment holding steady at 4.5 percent in July.
"The unemployment numbers this month are flatter than Kansas," said Labor Secretary Elaine Chao on Friday.
Unemployment: The Ripple Effect
So why the discrepancy? For one thing, Challenger, Gray & Christmas is keeping track of announced layoffs, many of which have yet to take effect. Indeed, their numbers indicate that the worst is yet to come.
"Job cuts tell us as much about the economy's future as they do about the present," says Challenger's CEO, John A. Challenger, adding: "If companies were anticipating a 2001 turnaround, with an increase in demand for goods and services, we would not be witnessing the extraordinary number of job cuts that are taking place this year."
Additionally, the Challenger, Gray & Christmas numbers do not include the number of new U.S. hirings made, which also helps to account for the discrepancy between the number of layoffs and the unemployment figures in any given month.
"Some of those [job cuts] are overseas, and you don't know how many are going to be implemented, or how many workers will be absorbed elsewhere in the company," says Steve Cochran, a senior economist at Economy.com in West Chester, Pa.
Interactive Guide to the Economy
Telecom and Technology Workers Hit Hard
Still, the numbers reveal that not all sectors of the economy are being hit equally hard by the slowdown. The struggling telecommunications sector led the way in July with 44,908 announced layoffs in July. Other technology companies announced 26,321 layoffs in the month.
Telecom equipment heavyweight Lucent, for instance, announced nearly 20,000 new layoffs in July, and may have about 56,000 employees by the end of the year, down from 155,000 in mid-2000. Telecom companies as a whole have announced over 175,000 job cuts in 2001, and other technology companies have announced more than 100,000 this year.
Lucent Loses Its Way
"The most worrisome aspect of the job-cut numbers, in terms of serving as an economic barometer, is the fact that job cutting has been heaviest in both manufacturing and technology," says Challenger.
Manufacturing is an area where announced layoffs have taken their toll. The Labor Department's monthly report cited a loss off 49,000 jobs in the sector in July, making it especially hard-hit.
But so far the service sector — covering everything from health care to financial services, advertising, accounting and other businesses — has avoided the brunt of the slowdown.
"The surprising feature is that there hasn't been more job loss in the service industries," says Richard Berner, chief U.S. economist at Morgan Stanley in New York.
Cochran predicts that in the coming months "the service industries are going to be equally affected" by the slowdown, adding: "It's hard to see really how almost any industry can avoid slower demand right now."
When Will the Economy Improve?
The main question on everyone's mind, though, is when the current economic slowdown will turn around — a development that would create more jobs across the board. Most observers feel there are still a few tough months ahead, as the economy as whole remains at an eight-year low.
Can Consumers Keep the Economy Going?
"I think there are more job cuts to come," says Berner, although he notes that unemployment figures are a "lagging indicator" of economic health and says some economic growth is possible by the fourth quarter of this year.
"Clearly we're going to see the unemployment rate go up in the second half of the year," adds Cochran, who says a turnaround probably won't come until the first or second quarter of 2002. "It's kind of a frustrating pace of economic growth."
"The hope is that the service economy and consumer spending can prop the economy up long enough to let interest rates take effect," concludes Challenger, who anticipates a better economy "maybe some time early in 2002."