skip to Main Content

First Cut: Challenger reports layoff intentions still elevated in May, but narrow sectors dominate

The Challenger report on job cut intentions rose 46.4% in May to 58,577 from the 40,023 in April and was up 85.9% from 31,517 in May 2018. It is a big increase that isn’t as worrisome as the headline might first project.

 

The largest share of announced intentions was in technology (12,635, or 21.6% of the total), followed by telecommunications (6,751, or 11.5% of the total). The Challenger report said tech and telecom companies’ plans for layoffs had to do with restructuring for more “agile” workforces and included offering voluntary severance to older workers. This does not mean that business is weak in these sectors. Rather, it is a cost-cutting move to reduce payroll expenses. The strong labor market will mean entry- and lower-level hires are getting better starting wages, while older workers who accept buyouts will still have opportunities to participate in these or other sectors.

 

It is important to remember that job cut plans are often for the future where businesses need to forecast their payroll needs. Sometime the cuts are for present unfilled job openings or to encourage workers to take voluntary severance or early retirement, and sometimes are intended to be executed over a period of months or years – and at times never take place.

While the year-to-date total for layoff announcements is up 39% to 289,010 from the 207,977 in January-May 2018, it may not signal any worrisome deterioration in the labor market. Rather, a few sectors are adjusting to slower economic conditions in the near term, and a more competitive job market after the hot hiring in 2018. This is not to say that layoffs may not increase somewhat as businesses opt for relocation, automation, and so-called right-sizing. Once many of these moves are accomplished, layoff activity should stabilize, albeit at a slightly higher trend level.

Reasons given for layoffs were concentrated in restructuring (24,274 or 41.4%) of the total, and consistent with companies’ decisions about how to proceed in light of slower economic activity and a changing trade environment.

Announced hiring plans fell 96.6% in May to 8,663 from 258,302 in April. However, if the 250,000 planned jobs at McDonald’s is subtracted from the April total, the 8,302 is very much in line with the prior month. Like layoff intentions, hiring can reflect plans for a period of months, even years. Wild month-to-month swings are not infrequent, especially for retail where businesses can have massive plans related to the winter holidays and resurgence in retail activity in the spring.

Back To Top