Energy, retail job cuts fuel 3-year high in layoffs
Announced layoffs hit a three-year high in April as cheap oil pummeled energy company payrolls and failed to provide an expected lift to retailers and consumer products companies.
But economists say the disappointing news doesn't portend a weak labor market this year. While oil-related reductions are likely to persist at a slower pace, consumers should soon step up spending and bolster merchants.
Not all planned job cuts have occurred yet either, and the ones that have aren't expected to blacken Friday's employment report for April from the Labor Department. Economists surveyed by Action Economics forecast 225,000 job gains — up from 126,000 in March — and a 5.4% unemployment rate, down from 5.5%.
U.S. employers announced 61,582 job cuts last month, up 68% from March and the highest total since May 2012, according to outplacement firm Challenger, Gray and Christmas.
Oil and natural gas companies accounted for about a third of the cuts as a 45% drop in crude prices since last June prompted firms to shut down drilling rigs and shed workers. Equipment manufacturers were also hammered and made up about 10% of the industry layoffs, says oil producer Continental Resources, which tracks the cuts.
So far this year, employers have announced 201,796 job cuts — the largest four-month total since 2010 — with 34% tied to low oil prices, Challenger said.
Surprisingly, the second-largest job trimmer is the retail industry, which has sliced about 26,100 jobs through April, up from 25,200 in the same period last year.
Retail spending was weak in the first quarter despite low gasoline prices.
"We thought consumer spending would have gotten a bigger lift," says economist Nathan Kelley of Moody's Analytics.
Diane Swonk, chief economist of Mesirow Financial, says many consumers used their pump savings to pay off holiday shopping bills early this year while others stayed away from the mall because of harsh winter weather.
Among other hard-hit sectors, consumer products companies chopped 6,000 jobs in April, virtually all by Procter & Gamble after a weak earnings report. The chemical industry cut 4,300, and aerospace and defense companies, 1,400.
Many layoffs are likely the result of a healthy pickup in mergers and acquisitions as the combined companies seek cost efficiencies, says Challenger CEO John Challenger.
The picture should brighten. Oil job cuts are likely to continue, barring a sharp upturn in crude prices, before the losses are partly reversed in 2016, Kelley says. He expects net oil industry job losses — including layoffs and hiring — to total 37,000 the rest of the year.
But Swonk says she foresees a pickup in retail sales in coming months as consumers finally spend their gas savings, aiding stores and consumer product makers.