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News > Economy
Job cuts soar in June
July 5, 2001: 3:05 p.m. ET

Announcements by U.S. firms jump to more than 7 times year-ago pace
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NEW YORK (CNNfn) - Job-cut announcements by U.S. companies soared in June, according to an industry survey released Thursday, as corporations continue to shed jobs in an effort to stay afloat in hard economic times.

U.S. companies announced 124,852 job cuts in June, compared with a paltry 17,241 in June 2000 a jump of 624 percent according to a report by outplacement firm Challenger Gray & Christmas Inc. Job cuts increased by 56 percent from May's total of 80,140.

  graphic JOB CUT ANNOUNCEMENTS IN 2001  
   
  • January: 142,208
  • February: 101,731
  • March: 162,867
  • April: 165,564
  • May: 80,140
  • June: 124,852
  •    
    Since the beginning of the year, Challenger said, a total of 777,362 job cuts have been announced, more than three times the number in the comparable period last year and the most drastic spate of cuts the company has ever seen.

    The cause has been an economic downturn in the United States that has hurt corporate profits, leading companies to unload jobs whether it actually helps them in the long run or not.

    "By and large, [job cuts] damage companies," said John Challenger, the outplacement firm's chief executive officer. "But companies are driven by Wall Street in the short term. They need to keep earnings up quarter to quarter, which drives them to cut costs quickly when revenue starts to drop."

    Though it's important to distinguish between job-cut announcements and actual job cuts, it's unlikely that companies will change their minds and back away from the announcements.

    "I don't know what company would announce cuts and then not take them all," Challenger said. "Not only would Wall Street be breathing down their neck, but it would leave workers under a cloud that more cuts must be coming. I don't think they go into these announcements very lightly."

    Telecom sector hit hardest

    Telecommunications continued to lead all sectors in job-cut announcements, the report said, with 27,446 in June. The automotive industry, computers, industrial goods and electronics rounded out the top five industries.

    "The good news for displaced workers as well as for the economy is that the jobs that are being affected the most by downsizing are still in demand," Challenger said. "This is why the unemployment rate has not increased at nearly the same rate as job cuts."

    The report comes on the same day the Labor Department reported new claims for unemployment benefits rose last week and a day before the government reports the June unemployment rate.

    In May, the unemployment rate actually fell to 4.4 percent, but Wall Street analysts polled by Briefing.com expect the rate to rise to 4.6 percent in June.

    Labor market still soft

    Though the number of job cut announcements fell dramatically in May and rose dramatically again in June, it does not mean the labor market got suddenly better and then suddenly worse.

    "One thing to keep in mind is that [Challenger's] numbers are not seasonally adjusted. Therefore, when you make comparisons, you really have to make them on a year-to-year basis," said Anthony Chan, chief economist with Banc One Investment Advisors.

    While 80,140 jobs were cut in May 2001, only 27,036 were cut in May 2000, meaning the labor market was still very soft in May.

    The good news for U.S. workers is that the economy seems to be on the road to recovery. Thursday brought the latest evidence, as the National Association of Purchasing Management said its monthly index of service-sector activity rose to 52.1 in June, its highest level since 61.1 in December 2000 and up from 46.6 in May.

    Click here for more on job cuts

    The bad news for workers is that job cuts usually are a lagging indicator of economic health they can rise even after the economy starts to recover, in part because companies don't want to make major changes to their work force until they're convinced of the health of the economy.

    "Firms don't want to the be first to lay off [in an economic downturn], in case it's temporary," Chain said. "If you lay off workers at the first sign of trouble, you get a bad reputation as a company."

    Similarly, Chan said, "When the economy starts to pick up, you're hesitant to hire workers back until you know [the recovery is] real." graphic

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    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.