American Express announced that it will cut 10% of its staff, which is about 7,000 employees
Amid a drumbeat of grim financial updates, two blue-chip companies announced plans for massive layoffs last week, spurring fears that the bloodletting on Wall Street could be just a prelude to deeper job cuts across the nation. American Express announced that it will slash 7,000 positions — some 10% of its staff — as part of an effort to save $1.8 billion next year as a counterweight to the rising number of consumers defaulting on their payments. Within hours of that announcement, communications giant Motorola Inc., which cut some 2,600 jobs in April, said it would trim an additional 3,000 staffers over the next several months after posting a third-quarter loss of nearly $400 million. It will also postpone a planned spin-off of its ailing cell phone division. (See pictures of the global financial crisis.)
With the country perched on the edge of a deep recession, the national unemployment rate above 6% and nine straight months of a national net decline in jobs, the question is whether the U.S. labor market's fortunes are about to plunge even more steeply. In the eyes of many experts, the answer is a bleak one. "Unfortunately, the worst is to come," says Robert Reich, a former U.S. Secretary of Labor under President Bill Clinton and a professor at the University of California, Berkeley. Reich argues that consumers have only begun to tighten their purse strings, which will shrink business markets and force employers to cut costs largely through payroll reductions. "We will see substantial layoffs in the coming months, and probably through 2009," he says.
A new analysis by Goldman Sachs sounds a similarly somber tone. It suggests that the downturn is still in its incipient phase, and that job losses could surpass 2 million in 2009, with unemployment climbing to 8%. "As the economy slides into a deeper recession, it appears we are closer to the beginning of the labor market downturn than the end," wrote the study's co-author, economist Ed McKelvey. "We anticipate a sharper decline in employment in coming months." Reich also quotes 8% as a likely unemployment figure, though he notes that figure excludes job seekers who have given up searching altogether and part-time workers seeking full-time employment. With those segments of the population added, the figure could skyrocket to 12%, according to Reich.
Those recently initiated into this group are anxious about their futures, says Susan Eaton, a senior vice president at Lee Hecht Harrison, a career consulting firm. She says she is counseling clients to remain positive and open-minded about their futures. "It's not all doom and gloom," she says, noting that she hasn't seen a curtailing of severance and benefits packages. "The reality is people are landing [safely]." Still, some of those landings have been bumpier than desirable. "You may need to reinvent yourself," Eaton says. "Some people are not going to go back to the same companies, at the same levels, at the same kinds of jobs." Adds Roy Krause, CEO of the recruiting and staffing firm Spherion: "It's surprising — our surveys [of job seekers] on a monthly basis show less confidence in the economy, clearly, but still a surprising amount of confidence in their individual ability to go find a job." (See pictures of TIME's Wall Street covers.)
The Goldman report suggests that over the next year, "lagging" sectors of the economy — like construction, manufacturing, financial services and retail — are likely to incur many of the coming losses. According to the Bureau of Labor Statistics, some of these sectors already have seen deep cuts of late. Reich says all industries that rely on discretionary spending are at risk, while regions where at-risk industries once thrived could be battered. Dwindling housing and construction markets could cripple the Sun Belt; hospitality-heavy regions like Florida could suffer from a lack of tourist spending; and auto-manufacturing states like Michigan should brace for further blows. (See pictures of the Top 10 scared traders.)
It's a dire prognosis, but there are bright spots. Necessities like health care will remain steady, and "Hollywood should do O.K.," Reich says, suggesting that "Americans want to be cheered up."