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Layoffs down despite tepid earnings growth

Jeremy Hobson Jul 20, 2012
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Layoffs down despite tepid earnings growth

Jeremy Hobson Jul 20, 2012
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Jeremy Hobson: We’ll start with some earnings reports that have come in this morning from some major American companies. Profit at General Electric was slightly better than analyst projections, but the company is looking at a dimmer growth outlook for the year ahead. The oilfield services company Schlumberger said this morning its profits were up as oil companies boosted their hunt for crude around the world. And Microsoft reported its first ever loss last night – thanks in part to weak ad sales.

To put it all together for us, we’ve got Chris Low. He’s chief economist with FTN Financial. He’s with us live as he is every Friday. Good morning.

Chris Low: Good morning.

Hobson: Well, Chris, a real mixed picture here, but what’s your take on how corporate America is doing at the moment?

Low: Well, you know, the earnings so far this quarter are a little better than expected, but that’s because we weren’t expecting much. If you look at this quarter and actually last quarter as well, earnings growth has slowed down. It’s the slowest earnings growth we’ve seen, in fact, since the recession. 

Hobson: But as of the last check, the company that looks at layoff announcements for big companies shows that they are not really looking at a lot of layoffs at the moment, so how are they adjusting to this?

Low: Well, no thats right. Normally management when earnings slow, their first reaction is ok where can we cut costs. But when you look at industries as a whole, it doesn’t look like we are seeing job cuts. I think it’s because the easy cost cuts have been done. And that is certainly good news for the economy from an employment perspective because layoffs are lower not just from what they were during the recession, but they are actually lower than what they were in ’06 and ’07.

Hobson: But if the easy cuts have already been done then if things get worse for companies going forward, don’t they then have to resort to job cuts?

Low: Well, and they will. So what we’re looking for is industry specific areas where jobs are likely to be cut. It’s happening now in finance, and it will happen in the second half of the year in the defense industry because the government has some pretty huge defense cuts coming with the fiscal cliff and the new year. 

Hobson: Chris Low, chief economist with FTN Financial, thanks as always.

Low: Thank you. 

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