Wave of layoffs here, Europe show severity of the recession
— -- Household names such as Caterpillar, cat Home Depot hd and Sprint Nextel s said Monday that they are laying off a combined 35,000 workers in moves that stressed the severity of the worldwide recession and kicked off what is likely to be a week of gloomy earnings announcements, further job cuts and dismal data.
The news ratchets up the pressure on the Obama administration and Congress as lawmakers debate an $825 billion stimulus package intended to save or create millions of jobs. Far more job cuts are likely as consumer and business spending tumbles amid what many economists say is the worst recession the USA has seen since the Great Depression.
"Some of the worst job losses are ahead of us, not behind us," says Wells Fargo senior economist Scott Anderson.
He expects 3 million Americans to lose their jobs in 2009 — up from the 2.6 million who were cut last year, which was the most since 1945, the final year of World War II. The layoffs are happening in "all industries in all areas of the world," Anderson says. "This will be one of the worst job markets in the postwar period."
Chris McCabe, 48, of Mansfield, Mass., lost his job Jan. 4 as director of product quality at consumer electronics company Sonos. The father of two teenagers has seen a few job leads evaporate after prospective employers stopped hiring or his contacts at the companies were laid off. His daughter is hoping to go to nursing school after graduating from high school this year, but he isn't sure he'll be able to afford the tuition.
"I've reached out to friends … to see who they may know in Boston," says McCabe, who says he has several friends who are out of work. "I don't think I've ever experienced anything in my life like this."
The unemployment rate is forecast to peak at a 25-year high of 8.8% early next year, up from 7.2% in December, according to the median in a survey of 52 economists conducted by USA TODAY Jan. 15-22.
The workweek began Monday morning with news of massive layoffs at several European companies, including electronics giant Philips (6,000 job cuts) and insurance and banking conglomerate ING, which announced it would drop 7,000 jobs.
Then came a wave of layoff announcements by U.S. companies. Among the largest:
•Caterpillar, the world's largest maker of large construction and farm equipment, said it would cut nearly 20,000 jobs and warned of a "dismal year for the world economy" as it reported its earnings.
The cuts, amounting to about 18% of Caterpillar's workforce, reflected how the slide in construction and mining worldwide has hurt the Peoria, Ill.-based company.
•Drugmaker Pfizer pfe said 18,000 people will lose their jobs as part of the merger of Pfizer and Wyeth announced Monday.
•Sprint Nextel, the nation's No. 3 mobile phone service provider behind Verizon Wireless and AT&T Mobility, said it will cut 8,000 workers by the end of March as part of a plan to save $1.2 billion.
•Home Depot, the world's largest home improvement retailer, said it's cutting 7,000 jobs. Most of the cuts will come from closing Home Depot's 34 Expo stores, which sell high-end home decor items.
•General Motors said it is cutting production at assembly plants in Lansing, Mich., and Lordstown, Ohio, resulting in 2,000 job cuts.
Monday's cuts follow a series of layoff announcements last week, including a plan by Microsoft msft to eliminate 5,000 jobs.
Joshua Shapiro, chief U.S. economist at economic consulting firm MFR, says layoffs at big-name firms tell only part of the story.
"A lot of these are grabbing headlines, but the small- and medium-size companies that are so dependent on bank credit are withering on the vine," says Shapiro, who expects the unemployment rate to climb to double digits.
The widespread layoffs during the last several months have forced many ousted workers to lower their sights in seeking employment.
Over the weekend, Terry Ellis, 48, of Lewisville, Texas, turned in an application to work at the local Wal-Mart. wmt
The father of four lost his job with Verizon vz last May after working for the company for 29 years, most recently as a purchasing manager. He hasn't had luck finding work and is worried about relying on his wife's salary as a pharmacy technician.
"Anything to pay the bills and put food on the table," he says.
Employers that are hiring report being inundated with applications. During the last three weeks, about 63,000 people have applied for 12,000 openings at CityCenter, a development on the Las Vegas Strip scheduled to open late this year.
In its search for people to fill jobs in gaming, hotel operations, food and beverage service, finance, engineering, entertainment and other areas, CityCenter is getting applications from people whose qualifications far exceed the jobs they're seeking, says Michael Peltyn, the company's head of human resources.
"We're not happy about the economy," he says. "But it sure hasn't hurt the applicant pool."
'It's really bleak out there'
Friday, the government is expected to report the economy contracted in the last three months of 2008 at the fastest pace since 1982.
Job losses are leading consumers to rapidly pull back spending either because they are out of work or because they fear their jobs could be in jeopardy. That is leading businesses to try to cut costs any way they can, including by cutting jobs or forcing workers to take unpaid leave.
Revenue fell 10% during the fourth quarter of 2008 compared with the same period in 2007, according to preliminary estimates from Standard & Poor's.
The numbers that matter most to investors and companies — earnings — are getting worse. Much worse.
In October, Wall Street was expecting companies in the Standard & Poor's 500 to report 46% higher earnings for the fourth quarter of 2008 compared with the same quarter in 2007, says Ashwani Kaul, director of research at Thomson Reuters.
But now that 18% of the companies have reported, earnings are down 31%.
"It's bad," Kaul says. "It's really bleak out there."
It's not just financials, although losses by banks and brokerages are the biggest drags on earnings. Seven of the 10 sectors of the economy are expected to report lower fourth-quarter earnings for 2008.
So far, the future isn't looking any more promising. Earnings are expected to be down 21% in the first quarter of 2009 and 19% in the second quarter, Kaul says.
Even companies that investors thought a year ago could hold up during a U.S. slowdown are feeling the pinch. Among them: Caterpillar.
The company's struggles show the depth and complexity of the economy's troubles. The sudden collapse in worldwide demand for industrial commodities, ranging from oil to copper, stopped the boom for exploration and production, says Alexander Blanton, analyst at Ingalls & Snyder.
That means previously booming nations such as China and Brazil are postponing orders for new machinery.
"Caterpillar is diversified, yes," Blanton says. "But the problem is almost everything is going down."
Empty spaces at malls
It's not just industrial weakness, either. The failures of several large retailers have left malls with cavernous empty spaces.
As a result, mall operators aren't willing to break ground on new malls when the ones they have aren't full, Blanton says.
As the bad news accumulates, the International Monetary Fund is expected Wednesday to again lower its forecast of global growth for this year.
Meanwhile, Federal Reserve Chairman Ben Bernanke and his colleagues are expected to pledge at the conclusion of their two-day meeting Wednesday to keep interest rates close to zero while pumping more money into the nation's financial system to try to get credit flowing again.
The doom and gloom comes as President Obama presses Congress to quickly approve an economic stimulus plan that includes personal and business tax breaks, aid to states and local governments and public works spending.
The House will vote on its version of the bill Wednesday, and Senate committees begin pulling together a companion bill this week.
The stimulus plans also include more aid for laid-off workers.
The House version contains $27 billion to extend a federal program that provides an extra 33 weeks of unemployment benefits, on top of the 26 weeks of regular coverage provided in most states.
The bill also includes $9 billion to increase the average $300 weekly unemployment benefit by $25. Another provision includes $20 billion to boost food-stamp benefits and more for job training.
Obama touted the stimulus plan Monday in remarks at the White House.
"These are not just numbers on a page," Obama said. "These are working men and women whose families have been disrupted and whose dreams have been put on hold. We owe it to each of them and to every single American to act with a sense of urgency and common purpose."
House Speaker Nancy Pelosi, D-Calif., has said the House will not adjourn for its Presidents Day recess, set for mid-February, until the stimulus legislation is passed.
Obama is scheduled to meet Tuesday with congressional Republicans to see whether he can drum up bipartisan support for the plan. So far, Republicans have been cool to the stimulus package, calling it too heavy on spending and too light on tax cuts.
House Minority Whip Eric Cantor, R-Va., says the stimulus bill contains too much wasteful spending, should focus more on small-business tax relief and should not provide refund checks to people who don't pay income taxes.
Cantor says that the billions of dollars of aid to states included in the bill is tantamount to rewarding legislatures that increased spending beyond their means.
"He (Obama) was elected based on the hope that people had that he could come to Washington and largely change the way things work," Cantor says.
Republicans also say the bill's public works spending won't take effect quickly enough. Obama has said 75% of the public spending would occur during the plan's first 18 months. But a Congressional Budget Office report released Monday night said only two-thirds of the plan's impact would be felt over the first 18 months.
"There is more power than people think for the federal government to pump out funds soon," says Allen Sinai, president of Decision Economics, who has been working with lawmakers on the plan.
"Our recovery will be driven by the federal government. That's different from almost all the recoveries we've seen in the past three decades."
Stimulus plans alone won't be enough.
Bernanke has suggested the government use part of the second half of a $700 billion financial rescue fund created by Congress last year to unlock lending through strategies such as setting up a "bad bank" that would buy troubled assets, taking them off the balance sheets of commercial lenders.
The White House has pledged to use $50 billion to $100 billion of the funding to prevent home foreclosures.
As part of the initial half of the $700 billion Troubled Asset Relief Program, or TARP, the government has pumped in $300 billion in cash to help provide ready capital to banks reeling from fast-declining assets, or help stronger banks such as PNC Financial buy weaker ones such as National City.
The hope was that the cash would help stem losses at banks and ease credit.
In recent weeks, it has become evident that the government's actions failed to prop up the banks, restore much confidence in the financial markets or even inspire much lending. "We're going from one banking crisis to another in a matter of weeks, and we don't know if we're done yet," says Anil Kashyap, finance and economics professor at the University of Chicago's Booth School of Business.
Kashyap says the government needs to take decisive action to stabilize the banking system. "The economy cannot grow if the banking system is impaired."
Contributing: David J. Lynch, Pallavi Gogoi, Julie Schmit and Detroit Free Press