Job cuts remain at pre-recession levels

NEW YORK (CNNMoney.com) -- Planned job cuts inched higher in May, driven by shrinking government payrolls, but the pace of downsizing continued to slow, a report released Wednesday showed.

Employers announced plans to cut 38,810 jobs in May, according to outplacement firm Challenger, Gray & Christmas Inc., for a 1.3% rise from April's four-year low of 38,326.

"Announced job cuts have, for all intents and purposes, returned to pre-recession levels," said John Challenger, chief executive officer of Challenger, Gray & Christmas, in a prepared statement.

Cuts in the government and non-profit sector, which accounted for 16,697 or 43% of total planned reductions in May, continued to outpace other areas of the jobs market.

Challenger attributed the trend to massive deficits brought on by plunging tax revenues and soaring costs, coupled with a reluctance to raise taxes in an election year. With limited options, state and local governments have put jobs on the chopping block.

"Unlike the private sector, which is beginning to see the fruits of recovery, the budget crisis for many states and municipalities is only getting worse," he said.

Still, the pace of job cuts continues to slow. Announced job cuts in May, though up slightly from April, were 65% lower than the same month a year ago, marking the 12th consecutive month in which job cuts came in both lower than the year-ago figure and under 100,000.

Planned layoffs announced during the first five months of 2010 totaled 258,319, down 69% from the 822,282 announced during the same period in 2009. At the current rate, job cuts for the first half of 2010 are on track to be the lowest since 2000.

Challenger said that a slowdown in downsizing is typically ahead of the summer months, but the low job cuts seen so far this spring are "particularly remarkable."

Although he doesn't expect the pace to slow further, given the still fragile state of the economic recovery, monthly job cuts could continue to fall during the summer, as businesses hold off on making dramatic staffing changes, he said.

The Challenger jobs report precedes a highly anticipated monthly jobs report from the government due Friday. The Labor Department is forecast to show a gain of 500,000 non-farm payrolls in May, according to economists surveyed by Briefing.com.

The government reported a gain of 290,000 jobs in April, the best gain in four years.