There is one overriding message from the jobs bloodbath of this week.
That is: this slowdown is going to be long, hard and tough and things are going to worsen.
Indeed US brokers Merrill Lynch now says it thinks estimates for 2009 profits for US companies are still too generous, that earnings are going to be lower.
Brokers already believe that December 2008 quarter earnings will be down 28%, so Merrill Lynch’s warning should be seen as a pointer to the future.
Anyone thinking it’s going to be a quick exit/rebound later this year, or even in 2010, had better think again.
The 100,000 job cuts that echoed around the world on Monday came from retailing, cars, heavy manufacturing, light manufacturing, technology, finance, insurance, technology and more.
On top of the cuts from the likes of BHP Billiton the week before, Intel and Microsoft, the trail of losses is mounting rapidly, day by day as employers, who have tried to keep staff on for as long as possible, are forced by plunging profits, to chop and chop deeply.
Companies reported badly damaged 4th quarter earnings in the US and Europe and used these profit slumps as the basis for the jobs cuts: Texas Instruments, Caterpillar and ING for example (it was bailed out by the Dutch government for a second time with a deal to takeover dodgy real estate assets and keep lending to the economy).
The IMF saw the US economy contracting 1.6% this year, with the euro zone shrinking 2% and Japan 2.6%. Media reports said the Fund, later this week, would reveal world growth for this year 0.5% at best. Next year an optimistic 3%.
Overnight the Japanese economy okayed a modest stimulus package of about $US75 billion and the German Cabinet signed off on a 50 billion euro package. The UK Government revealed a $US4 billion-plus assistance package for its car industry.
The aim of these packages is to try and slow the downturn and keep as many people as possible in jobs.
Companies in the US and Europe chopped more than 90,000 jobs Monday that also saw the Iceland government collapse, General Motors chop more factories as sales slump, and America’s second biggest cardboard processor collapse with $US5.6 billion in debts.
Around 80 000 jobs were cut in the US, the rest in Europe.
A survey of private sector economists in the US had bad news: they see the slump as worsening. (Source)
The survey found that companies will lay off more workers and hoard more cash in the next 12 months. A large majority of the 105 economists polled believe the country’s gross domestic product will continue to sink in 2009.
Respondents to the survey were getting more pessimistic about the macroeconomic outlook. "78% of respondents expect U.S. real GDP to be lower in 2009 than in 2008."
"NABE’s January 2009 Industry Survey depicts the worst business conditions since the survey began in 1982, confirming that the U.S. recession deepened in the fourth quarter of 2008," said Sara Johnson, a NABE economist.
Nearly half (47%) of surveyed economists said overall industry demand was falling, compared with 35% who said so in the October survey.
"Just 10% of respondents said profit margins were rising, compared with 52% who believe they are falling. And 38% of economists said capital expenses are falling, up from just 15% in October.
"Over half expect real GDP to fall by more than one percent this year, and only three percent project growth of over one percent.
"Falling profit margins outnumbered rising margins five-to-one among respondents’ firms—the worst reading since 1982.
"Job losses accelerated in the fourth quarter, and the employment outlook for the next six months has weakened further.
"With market prospects deteriorating, firms slammed the brakes on capital spending in the fourth quarter of 2008; the percentage of firms reducing capital expenditures (38%) was the highest in the history of the survey."
The survey found that a majority of those replying said credit conditions hurt businesses, as customers had less leverage to buy discretionary products. 78% of respondents said tightening credit conditions affected customers, and 52% said the credit crunch directly hurt businesses in their industries.
Rapidly deteriorating global market conditions are hammering business profits.
"For the fourth consecutive quarter, reports of falling profit margins (52% of respondents) outnumbered reports of rising margins (10%). This was the worst result since the spring of 1982.
Job losses accelerated in the fourth quarter, producing the worst survey result in 17 years. Some 44% of firms cut payrolls, while only 14% added workers.
"Looking ahead, 39% of companies plan to reduce payrolls over the next six months, while 17% plan to increase employment. Only the services sector continues to create jobs."
If anything, that explains why so many big and small companies are now cutting jobs, more than a year after the US economy officially slipped into this recession. Business conditions have become so fraught, thanks to the credit crunch and drought, that they have no alternative.
With US first time jobless claims running at more than half a million a week for the past two months, there’s no let up in the flow of bad news for US workers, and increasingly employees in Europe and Japan.
US unemployment looks certain to surge from the December level of 7.2%, even as thousands of workers stop actively searching for the few jobs that are there.
