Household names such as Caterpillar, Home Depot and Sprint Nextel said Monday that they are laying off roughly 40,000 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 United States has seen since the Great Depression.
“These are not just numbers on a page,” President Barack Obama told reporters at the White House on Monday, as he urged Congress to pass his economic stimulus package. “These are working men and women whose lives have been disrupted. We owe it to each of them, and to every single American, to act with a sense of urgency and common purpose.”
The job cuts announced Monday “are the predictable consequence of a quickly unraveling economy affecting all sectors and segments of the work force,” said Lawrence Mishel, the president of EPI. “Unfortunately, the rise in unemployment we’ve already had may only be halfway to where we’re heading.”
The unemployment rate, at 7.2 percent nationwide as of December, has already reached 10 percent in some states, including Michigan and Rhode Island, the hardest hit. The nation has experienced the steepest rise in unemployment since the recession of the early 1980s, a recent analysis by the Economic Policy Institute found.
Construction firms, banks and automakers have been eliminating jobs for more than a year. But now positions are being cut across the economy. This signals that even financially strong companies are bracing for a prolonged economic downturn.
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.
“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.”
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, Pfizer, Spring Nextel, Home Depot and General Motors. Monday’s cuts follow a series of layoff announcements last week, including a plan by Microsoft to eliminate 5,000 jobs.
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.
To some degree, the rash of layoffs is a reflection of how companies are trying to preserve their profit, or stop losses from getting worse, while revenues drop off a cliff. Revenue fell 10 percent during the fourth quarter of 2008 compared with the same period in 2007, according to preliminary estimates from Standard & Poor’s.
Even companies that investors thought a year ago could hold up during a 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.”
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 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.
Many economists had forecast that a government stimulus package would help revive the economy in the second half of the year. But as the recession deepens, some wonder whether its impact will be felt as early as they had expected.
“If the stimulus gets out there, that’s a chunk of money that will probably help stimulate the economy, but we’re not as sure of it as we were a few months ago. Things fell apart in the fourth quarter much faster than I’ve ever seen it happen before,” said David Wyss, chief economist for Standard & Poor’s.
The House will vote on its 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.