As the financial crisis crimps demand for U.S. goods and services, the workers who produce them are losing their jobs by the tens of thousands.
Layoffs have arrived in force, like a wrenching second act in the unfolding crisis. In just the last two weeks, the list of companies announcing their intention to cut workers has read like a Who's Who of corporate America: Bank of America, Merck, Yahoo, General Electric, Xerox, Pratt & Whitney, Goldman Sachs, Whirlpool, Alcoa, Coca-Cola, the Detroit automakers and nearly all the airlines.
When October's job losses are announced Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.
“My view is that it will be near 8 or 8.5 percent by the end of next year,” said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s.
Companies are laying off workers to cut production as consumers, struggling with their own finances, scale back spending. Employers had tried for months to cut expenses through hiring freezes and by cutting back hours. That turned out not to be enough, and with earnings down sharply in the third quarter, corporate America turned to layoffs.
“People have grown very nervous,” said Harry Holzer, a labor economist at Georgetown University and the Urban Institute, tracing cause and effect. “They have seen a lot of their wealth wiped out, and as they cut back their spending, companies are responding with layoffs, which hurts consumption even more.”
The layoffs are widespread, with Rhode Island hardest hit.
For Dwight and Rochelle Stokes of Phenix City, Ala., the layoffs are a family event. He lost his job two weeks ago as an aviation mechanic at the Pratt & Whitney jet engine facility near his home – a few days after his wife lost hers as a cosmetologist at Great Clips, a family-owned barbershop and beauty salon.
“It got really slow in July and August,” Rochelle Stokes said. “I would sit there for two hours, and some days we had only 10 clients, four of us for 10 clients.”
The broadening layoffs are most pronounced on Wall Street, in the auto industry, in construction, in the airlines and in retailing. The steel mills, big suppliers to many sectors of the economy, are shutting 17 of the nation's 29 blast furnaces — a startling indicator of how quickly output is declining as corporate America struggles to adjust to the spreading crisis.
“We have seen a softening order book in the most dramatic ways in the last week,” said Tom Conway, a vice president of the United Steelworkers of America, adding that layoffs in the industry “are just starting now.”
In September alone, 2,269 employers each laid off 50 people or more, the Bureau of Labor Statistics reported, up sharply from the spring and summer months, and the highest number since September 2001, when the aftermath of the 9-11 attacks coincided with a recession to spook employers. A spike in 2005 was related to Hurricane Katrina.
The financial services industry has been cutting jobs since last summer, when the credit crisis took hold. By some estimates, 300,000 jobs will disappear from banks, mutual fund groups, hedge funds and other financial services companies before the crisis subsides — 35,000 of them in New York.
Goldman Sachs alone, among the best performers on Wall Street, has announced plans to cut 10 percent of its work force, which stood at 32,594 at the end of last month.
The current unemployment rate, 6.1 percent – up more than a percentage point since April – is still relatively mild by post-World War II standards. The highest level since the Depression, 10.8 percent, came in November and December of 1982 as the economy was shaking off a severe recession.
The unemployment rate hit 9percent during the mid-1970s recession, and 7.8 percent in the 1990-91 downturn. The next peak, 6.3 percent, occurred in June 2003, during a long jobless recovery in the aftermath of the 2001 recession.
Dwight and Rochelle Stokes, both in their late 20s, have just joined the layoff rolls. So has Dwight Stokes' father, Warren, 48, who lost a $30-an-hour job this month on the assembly line of the Chrysler truck plant in Fenton, Mo., near St. Louis., where the father had worked for 12 years. “They just cut back,” the son said.
Just a year ago, he and Rochelle, and their two very young children, moved to Phenix City from Fenton so he could take the mechanic job at the Pratt & Whitney plant in nearby Columbus, Ga. Airlines send engines there for periodic overhauls, and when Dwight Stokes arrived 400 workers were tearing down and rebuilding 15 engines a month.
But as the airlines reduced flights – and announced 36,000 job cuts, nearly all of them taking place in the current fourth quarter – that number fell to three engines this month and “it was going to be worse for November, just one or two,” Dwight Stokes said.
“We came in on Monday morning, and our supervisor told us not to touch an engine, and we knew there would be layoffs,” he said. By lunchtime, Dwight Stokes and 100 others had been escorted out of the building, with four weeks' pay as severance, along with four weeks of health insurance and a $1,000 departure check.
As a starting mechanic, Dwight Stokes' pay, $11.50 an hour, was just over half of what he had earned as the manager of a chain of pawn shops in Missouri. But he took the job anyway, moving with his family, because Pratt & Whitney offered full college tuition. Dwight Stokes immediately enrolled in Embry-Riddle Aeronautical University to pursue a bachelor's degree in management and a minor in engineering sciences.
He had earned half the necessary credits when the layoff came. The severance included extended tuition, and Dwight Stokes, piling on course work, hopes to earn his degree by early summer. But he will do so by correspondence course; the family is returning to Missouri, moving in with Dwight Stokes' sister in Fenton.
“When I have my degree in June, I'll apply for a management position,” he said. “Even though things are bad, I hear there are openings in St. Louis requiring a bachelor's degree.”