Another look at the economy, this time from the perspective of layoffs in some interesting places. Job cuts are accelerating across the country as more and more employers are running in the red due to high fuel and commodity prices…and not all these employers are private sector.
First, Citigroup is announcing another round of layoffs this week.
Citigroup Inc. may begin another round of job reductions as soon as this week as part of a plan to cut its trading and investment-banking workforce by 10 percent, said a person with knowledge of the matter.
The largest U.S. bank is about halfway through the 6,000 job cuts at the division signaled in March, said the person, who declined to be identified because Citigroup hasn’t disclosed the plans publicly. Citigroup employs about 300,000 people worldwide and has announced more than 13,000 job reductions this year.
Chief Executive Officer Vikram Pandit is lowering costs and shedding assets after the New York-based company reported two straight quarterly losses totaling $15 billion. The world’s largest banks and brokerage firms have slashed more than 80,000 jobs since subprime mortgage defaults infected credit markets and led to almost $400 billion of writedowns and losses.
“I see more downsizing to come,” said Andy Mantel, managing director of Pacific Sun Investment Management Ltd. in Hong Kong. “Banks need to take precautionary measures.”
Needless to say, Citigroup is typical of the entire financial industry. Many more thousands — if not hundreds of thousands more — will find themselves out of work in the financial business as the economy continues to sink. The sustained downturn is deeply cutting into numbers, and of course the most efficient way to get those number back up is to lop off heads.
Other financials are following suit. Washington Mutual just killed 1,200 jobs with the possibility of many more coming, Goldman Sachs is reducing headcount and cutting costs.
It’s not just financials that are hurting. Newspapers have long been slicing jobs, and the latest has been 1,400 out of work at McClatchy…ironically, the newspaper layoffs are being directly related to the housing crisis.
The 1,400 McClatchy Co. employees targeted for layoffs can blame their job loss on the faltering newspaper economy in general, their company’s specific concentration of papers in California and Florida where the housing collapse has been most acute — and a forward-looking strategy once hailed as a way to avoid precisely this kind of pain.
When McClatchy borrowed heavily to buy Knight Ridder Inc. in 2006, it was following a strategy that Wall Street and other industry observers said made perfect sense for newspaper chains: grow top-line revenue through acquisitions funded by cheap credit. McClatchy added its own spin — again to favorable reviews — by quickly reducing much of the debt with the sales of a dozen dailies that didn’t fit its company profile of serving “fast-growing” markets.
But, as the June E&P cover story — titled “Til Debt Do Us Part” — makes clear, everything went wrong for McClatchy after the applause faded.
The housing crunch depressed revenues, especially at such newly acquired properties such as The Miami Herald, and older California papers, such as its flagship Sacramento Bee. More than one-third of its total advertising revenue comes from papers in Florida and California.
McClatchy was quickly forced to scramble, and within a year was selling the Minneapolis Star Tribune at a loss, raising capital and creating a tax loss.
Wall Street’s disenchantment with newspapers has also hit McClatchy particularly hard, with its stock collapsing more than 70% in the past year.
After taking $3 billion in non-cash goodwill impairment charges related mostly to those papers in 2007, the $4.6 billion Knight Ridder deal looks considerably less valuable — but $2.5 billion in debt is not going away.
Fewer households to sell subscriptions, less newspaper to sell, less reporters to employ. The housing depression is causing second and third order consequences that are staggering in their scope and breadth. The housing depression is beginning to swamp everything.
And with housing going south, local tax revenues are crumbling as real estate values drop and property tax revenues along with them. The result? You guessed it: local and state governments are laying off thousands.
The latest hit to the economy could come from state houses and city halls across the nation, which are in their worst budget crisis in years.
With falling revenue from sales and income taxes, and property-tax declines looming, states, cities and towns have already laid off tens of thousands of government employees. Many expect more job cuts ahead as public officials struggle to balance their budgets.
The American Federation of State, County and Municipal Employees, a public employees union, says about 45,000 government layoffs have been announced this year.
All but four states are set to begin their new fiscal years on July 1, which means that tough decisions will have to be made soon. Economists say that cutbacks in jobs and spending by local governments could be a major drag on the overall economy.
“This isn’t a wrecking ball to a healthy economy, but it could be the straw that broke the camel’s back,” said Bob Brusca, economist with FAO Economics in New York.
There are 29 states, including California, Florida and Ohio, facing a combined budget shortfall of at least $48 billion in the fiscal year that starts July 1, according to the Center on Budget and Policy Priorities (CBPP), a liberal think tank.
The National Association of State Budget Officers estimates that spending by all 50 states will be up 1% in fiscal 2009. But that would be the third lowest increase in the past three decades.
There are nearly 20 million state and local government employees in the country. So a 1% decline in employment at cities, towns, schools and states would result in a job loss of almost 200,000 people, a much larger amount than we’ve seen from battered sectors such as automakers or home builders in the past two years.
The job cuts we’ve seen in the private sector will pale in comparison to the ones coming down the pike in the government sector. The self-destructive spiral of economic disaster is well underway. Either way, hundreds of thousands if not millions of jobs will be lost over the next couple of years. The pain is just starting.
Be prepared.
