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Layoffs Surge As Recovery Shows Little Sign Of Momentum

First Posted: 08/03/11 09:20 AM ET Updated: 10/03/11 06:12 AM ET

The early days of the recession were characterized by massive layoffs across industries, and while economists caution that the labor market isn't there yet, a surge of private sector layoffs in July may indicate that the American recovery is stalling out.

This week has been a worrisome one for economists who monitor the health of the U.S. economy, with mounting signs all pointing in the same direction: For the average American worker, a rebound will not be soon forthcoming. In fact, things seem to be moving in the other direction.

GDP growth is weak; new hiring is not keeping pace with population growth, according to fresh data; and growth in manufacturing -- which once led the recovery -- has practically ground to a halt. But most worrisome of all the signs, perhaps, is the return of mass layoffs.

For the past three months, American companies have been cutting their workforce in increasing numbers, according to a new report from Challenger, Gray & Christmas, an outplacement consultancy group in Chicago. In July, the number of planned job cuts surged to a 16-month high of 66,414 -- a 60 percent increase from June.

"We're beginning to see patterns that are disconcerting, and the really troubling part is this: Nothing is happening in the economy which is going to boost job growth," said Christine L. Owens, executive director of the National Employment Law Project.

The pattern, if it continues, could spell serious trouble for the American labor market.

"What may be most worrisome about the July surge is that the heaviest layoffs occurred in industries that until now have enjoyed relatively low job-cut levels, including pharmaceuticals, computer and retail,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.

Still, the Challenger report cautions, it's too early to say whether these cuts are the beginning of a larger trend or just a couple of bad months. More than 50 percent of July's layoffs were concentrated at just five companies: Merck & Co., Borders, Cisco Systems, Lockheed Martin and Boston Scientific. And as the report lays out, the top three job-cutting companies reduced their workforces for reasons not driven directly by weakness in the economy, but "by factors specific to those companies' operations." Borders, for example, "was unable to compete in an increasingly digital landscape, dominated by Amazon.com and Barnes & Noble."

But other signs suggest the surge in layoffs may have deeper roots than a handful of companies' need to shed employees. With the exception of slight improvement last week, new weekly unemployment claims have topped 400,000 a week for more than three months -- the level generally considered the dividing line between an improving labor market and a stagnant one. Likewise, the number of job openings dropped in June and July, according a firm that tracks online job postings. Another telling piece of the puzzle: The number of temporary workers -- whose fortunes are closely watched as an indicator of employers' future hiring intentions -- dipped between May and June, according to the Bureau of Labor Statistics.

If the layoffs continue to increase, Owens said, the effects will be brutal for an already battered American workforce.

"I think that we will see an increase in poverty and a growth in bankruptcies," she said. Even more worrisome: An extension of federal unemployment insurance for the long-term unemployed, discussed in negotiations in Washington as late as July, was not included in the final debt deal signed into law on Tuesday. Owens said that workers who lost their job in the July cuts and are unable to find work by the end of the year will not have government unemployment benefits to help keep them above the poverty line.

"We're going to see significant social impact for these workers, their families and on their communities: because the resources that these folks were able to pump back into their communities will be gone," Owens said.

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