Layoffs And Rising Unemployment
The Dynamic Wealth Report
November 8, 2008
20,000 Jobs Lost... Is It Good?
I woke up this morning to some unsettling news. Dow Chemical (DOW) is
shutting 20 plants and asking 11% of its workforce to leave. On top of
that, they’re cutting another 6,000 contractors from payroll. Last week
DuPont (DD), another chemical manufacturer, dismissed 2,500 employees.
3M (MMM) is also announcing layoffs this morning… 1,800 jobs.
Between Dow and 3M and a number of other companies, almost 20,000 people
have lost their jobs in the last few days. And that doesn’t count the
autoworkers at the Big 3. They’ll no doubt see some layoffs as well.
This news made my stomach turn.
I remember sitting in my office a few years back. I was watching
co-workers lose their jobs. I can still vividly recall the fear
and sadness on their faces.
Several firms I worked with went through
workforce reductions. One, right after the dot-com blowup, was
particularly devastating. Almost half the office was let go.
The job picture’s looking bleak once again.
US non-farm payrolls for the month of November were announced Friday.
The news wasn’t good. More than half a million people lost jobs. For
those of you quick on the math, it’s more than 17,000 jobs a day.
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In Chicago, workers are taking matters into their own hands.
250 workers at the Republic Windows & Doors plant received word last
week they’d
be losing their jobs. Unfortunately, they were only given 3
days notice. In a scene straight out of the 1930s the unionized
employees staged a takeover.
They won’t vacate the plant until guarantees of severance and vacation
pay are given.
Business has fallen off not only at the Republic Windows & Doors plant
but at other businesses around the nation. The economic slowdown’s
taking its toll.
So let me ask you a question… Is it a good thing?
Could all of these layoffs be good for the economy? First let me say,
losing a job is never a good thing. Having it happen a few weeks before
Christmas is horrible, and devastating. My heart goes out to the
hundreds of thousands of people in this very situation.
However, I do believe sometimes it’s necessary to let employees go…
especially if the health of the overall business is in jeopardy. I think
of it like pruning a tree. You cut back all of the dead wood to help the
rest of the plant thrive in the spring.
Big layoffs can also help the overall economy.
Short term, layoffs hurt. People who lose their jobs stop spending. And
those who survive the job cuts slow spending way down… fearful that they
might be next. Any slowdown in consumer spending is painful. But it can
lead to a brighter future.
The impact to business is a bit different.
By cutting back on a bloated workforce, business is often able to grow.
They’re able to ensure job stability to the remaining employees. Pay
those who remain behind better. And, best of all, profitability and the
return stockholders receive should go up. Overall, with fewer employees
overhead costs are reduced.
But, here’s a word of caution.
When a company does cut back on employees, that’s not the time to jump
in and buy a stock. I wouldn’t rush out and try to buy up shares of 3M,
DuPont, or even Dow. Sometimes the first round of layoffs can be
followed by others. You never know how layoffs will impact a business.
I like to wait and watch for signs of life.
I’d I’ll monitor the business and results. Look for signs the layoffs are productive. Look for improving business growth, bigger better
margins, and most of all profits. Remember… if a company doesn’t have
profits, soon they won’t have any employees.
• Coal Industry (Down 37%)
The coal industry has fallen about 37% in the last month. The economic
slowdown is clearly impacting the demand for electricity… and coal is
one of the largest generators of electricity in our country. This is
causing the price of coal to fall, clearly impacting industry profits.
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