40,000 jobs lost in one day as deflation's vicious cycle accelerates

Filed under: Forecasts, General Electric (GE), Advanced Micro Dev (AMD), Clear Channel Commun (CCU), ConocoPhillips (COP), Economic data, Recession

Yesterday no fewer than 20 companies around the world announced 40,000 layoffs. As I posted, that's the flip side of the great inflation report that came out this week. And those 40,000 are among the first of 2.1 million U.S. jobs that are forecast to disappear in 2009 -- particularly if the $825 billion stimulus plan does not pass.

Here are some of yesterday's cuts from the U.S. companies:

• Circuit City Stores is liquidating and taking 30,000 jobs along for the ride


• Hertz Global Holdings Inc. (NYSE: HTZ) is eliminating 4,000 jobs worldwide due to a drop in travel demand.


• WellPoint (NYSE: WLP) the second-largest U.S. health insurer, will end 1,500 jobs, which include 600 workers and 900 open positions.


• Clear Channel (NYSE: CCO) -- the largest U.S. radio broadcaster -- will lay off 1,500 employees on January 20.

• Conoco Phillips (NYSE: COP) the second-largest U.S. refiner, announced that it plans to cut 4 percent of its workforce, or about 1,350 jobs.


• Advanced Micro (NASDAQ: AMD) the second-largest producer of personal-computer processors will eliminate 1,100 jobs by the end of the first quarter.


• General Electric Co.'s (NYSE: GE) finance arm may cut 7,500 to 11,000 jobs, or at least 10 percent of its workforce, because of the financial crisis.

Unfortunately, many other companies in the U.S. and around the world cut jobs yesterday. And the cuts are across a wide range of industries which suggests that a deflationary spiral is hurting all industries. That means that lowering demand causes sales to drop and producers respond by cutting prices and reducing capacity. The lost jobs that follow the capacity reduction mean that consumers, which account for 70% of GDP growth, will buy less. And the cycle will begin anew.

Let's hope that the stimulus package will be able to "save or create" the hoped-for three million jobs. If it does, then we might be able to get back to where we were at the end of 2007. If not, the 2.1 million forecast for 2009's lost jobs may prove to be too low.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. Portfolio published his eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing on December 26, 2008. He owns GE stock and has no financial interest in the other securities mentioned,

 

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