Planned Job Cuts Drop 41%; 16% for Pharma Industry

March 5, 2010

Monthly job cuts fell in February to the lowest level since 2006, as companies announced plans to reduce payrolls by only 42,090, according to the latest job-cut report released March 3 by global outplacement consultancy Challenger, Gray & Christmas, Inc.

The February total was down 41 percent from January's 71,482 announced job cuts.  It was 77 percent lower than the 186,350 job cuts announced in February 2009, when the economy was still in the midst of the housing and financial markets collapse.

Downsizing activity peaked in January 2009, with employers announcing 241,749 job cuts, the highest monthly total in seven years.  Since then, monthly job cuts have steadily declined, with only a couple of exceptions.  Last month's total marks a new low-point for this downward trend.  It is, in fact, the lowest monthly total since June 2006, when employers announced just 37,178 job cuts.

Through the first two months of 2010, employers announced 113,572 planned layoffs.  That is 73 percent below the pace established in the first two months of 2009, when 428,099 job cuts were announced.

"Most economists agree that a recovery is well underway; a position that appears to be supported by declining job-cut activity.  It may be a couple of more months before hiring begins to surge, but it is clear that employers have shifted away from downsizing and are poised to start adding workers," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

Perhaps most telling of the economy's turnaround are the declines experienced by some of last year's largest job cutters.  In the first two months of 2009, retailers announced 72,727 planned job cuts.  So far this year, retail job cuts are down 75 percent to 18,271.  By this point last year, automotive companies had already announced 70,058 job cuts.  As of last month, these firms have planned just 7,334 cuts; a 90 percent drop.

The leading job-cut industry early in 2010 is the pharmaceutical sector, which has announced 25,857 job cuts, including 17,687 in February.  This two-month total is down slightly from the same period a year ago, when these firms announced 30,869 job cuts.

Drop in Cuts for Top Downsizing Sectors in January, February 2009

Industry Jan-Feb 2009 Jan-Feb 2010 % Change
Retail 72,727 18,271 -75%
Automotive 70,058 7,334 -90%
Industrial Goods 51,545 5,214 -90%
Pharmaceutical 30,869 25,857 -16%
Computer 26,290 3,027 -88%

"We are seeing more job cuts related to business strategy, as opposed to cuts stemming from recessionary pressure.  In other words, we expect more cuts from mergers and acquisitions or from companies shifting focus from one business area to another," said Challenger.
One of the largest planned job cuts announced last month came from pharmaceutical giant Merck & Co., following its acquisition of competitor Schering-Plough.  In another example of strategic job cutting, database-software company Oracle Corp. reported that there would be about 1,000 job cuts resulting from it acquisition of Sun Microsystems.  At the same time, however, the company announced plans to add 2,000 workers over the next few months to support the newly acquired Sun businesses.

"Such moves may not make much sense to the casual observer.  Why not simply move people around instead of announcing layoffs.  However, it is not always as simple as that, particularly in the technology sector, where specialized skills that are not easily transferable are often required," said Challenger.

"What is most promising about these recent cuts is that they are being made to put the company in the best position to take advantage of future growth opportunities.  Twelve months ago, cuts were being made simply to keep the company afloat.  The overall decline in job cuts that has occurred over the last six-to-eight months is certainly an indication of increased optimism on the part of the nation's employers.
"Make no mistake, many are still struggling, but there is an overall sense that we have turned a corner.  With downsizing showing dramatic signs of stabilization, chances are good that increased job creation is approaching," said Challenger.