Layoffs And Rising Unemployment

| November 8, 2008 | 0 Comments

I woke up this morning to some unsettling news.  Dow Chemical (DOW) is shutting 20 plants and asking 11% of its workforce to leave.  On top of that, they’re cutting another 6,000 contractors from payroll.  Last week DuPont (DD), another chemical manufacturer, dismissed 2,500 employees.

3M (MMM) is also announcing layoffs this morning… 1,800 jobs.

Between Dow and 3M and a number of other companies, almost 20,000 people have lost their jobs in the last few days.  And that doesn’t count the autoworkers at the Big 3.  They’ll no doubt see some layoffs as well.

This news made my stomach turn.

I remember sitting in my office a few years back.  I was watching co-workers lose their jobs.  I can still vividly recall the fear and sadness on their faces.

Several firms I worked with went through workforce reductions.  One, right after the dot-com blowup, was particularly devastating.  Almost half the office was let go.

The job picture’s looking bleak once again.

US non-farm payrolls for the month of November were announced Friday. The news wasn’t good.  More than half a million people lost jobs.  For those of you quick on the math, it’s more than 17,000 jobs a day.

In Chicago, workers are taking matters into their own hands.

250 workers at the Republic Windows & Doors plant received word last week they’d be losing their jobs.  Unfortunately, they were only given 3 days notice.  In a scene straight out of the 1930s the unionized employees staged a takeover.

They won’t vacate the plant until guarantees of severance and vacation pay are given.

Business has fallen off not only at the Republic Windows & Doors plant but at other businesses around the nation.  The economic slowdown’s taking its toll.

So let me ask you a question… Is it a good thing?

Could all of these layoffs be good for the economy?  First let me say, losing a job is never a good thing.  Having it happen a few weeks before Christmas is horrible, and devastating.  My heart goes out to the hundreds of thousands of people in this very situation.

However, I do believe sometimes it’s necessary to let employees go… especially if the health of the overall business is in jeopardy.  I think of it like pruning a tree.  You cut back all of the dead wood to help the rest of the plant thrive in the spring.

Big layoffs can also help the overall economy.

Short term, layoffs hurt.  People who lose their jobs stop spending.  And those who survive the job cuts slow spending way down… fearful that they might be next.  Any slowdown in consumer spending is painful.  But it can lead to a brighter future.

The impact to business is a bit different.

By cutting back on a bloated workforce, business is often able to grow. They’re able to ensure job stability to the remaining employees.  Pay those who remain behind better.  And, best of all, profitability and the return stockholders receive should go up.  Overall, with fewer employees overhead costs are reduced.

But, here’s a word of caution.

When a company does cut back on employees, that’s not the time to jump in and buy a stock.  I wouldn’t rush out and try to buy up shares of 3M, DuPont, or even Dow.  Sometimes the first round of layoffs can be followed by others.  You never know how layoffs will impact a business.

I like to wait and watch for signs of life.

I’d I’ll monitor the business and results.  Look for signs the layoffs are productive.  Look for improving business growth, bigger better margins, and most of all profits.  Remember… if a company doesn’t have profits, soon they won’t have any employees.

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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