Challenger Job Report: Widespread Downsizing Not on the Horizon Just Yet

Payroll processor ADP’s national employment report showed Wednesday that employers added a disappointing number of new jobs to their payrolls in April. This release prompted analysts to begun postulating once again that job growth is now slowing as the result of tough fiscal headwinds. But while fewer jobs were created last month than expected, employers trimmed fewer jobs from their payrolls in April as well.

Job cuts fell to their lowest level since December, according to the latest report on downsizing activity released Thursday by the outplacement consultancy firm Challenger, Gray & Christmas. Employers planned to cut payrolls by 38,121 in April — a 23 percent decrease from March and 6 percent decrease from the 40,559 planned job cuts announced in April 2012. Despite this decrease, in the first four months of the year, the rate of downsizing has been nearly equal to a year ago. So far in 2013, employers have announced 183,162 layoffs, a figure just 0.27 percent lower than the 183,653 job cuts planned in the first four months of 2012.

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“The economic slowdown that began late in the third quarter and is expected to turn into another summer slump has yet to result in increased or widespread downsizing. The biggest concern is that consumers, who had been holding up the economy for so many months, are starting to scale back their spending as wages continue to stagnate,” said the firm.

As the report detailed, the retail sector experienced the highest number of announced job cuts, with 5,897, a significant decrease from the 16,445 layoffs announced by retailers in March. However, through the first four months of the year, layoffs in the retail sector increased 64 percent from a year ago. The slowdown in the retail sectors has been reflected in consumer spending data. While spending was up 0.2 percent in March, according to the Commerce Department, most of the gains resulted from increased heating costs during the unseasonably cold month. Comparatively, spending in other categories, including household goods, retail, and restaurants declined in March.

“American’s wages are not quite keeping pace with increased expenses. As a result, we are not going to see a big increase in consumer spending. It is just as unlikely that we will see a significant drop-off in spending. What is most likely is that consumers will simply shift their spending around,” said John Challenger, chief executive officer of Challenger, Gray & Christmas.

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Following a pickup in economic growth at the beginning of 2013, recent indicators have suggested that the recovery stagnated heading into the second quarter. Still, the recent slowdown has not yet resulted in increased or widespread downsizing, although the effect on job creation appears to be growing. Challenger’s job cut report was released just one day ahead of the U.S. Labor Department’s key jobs report, which is expect to show the economy created 145,000 jobs last month, a significant improvement from March’s disappointing 88,000.

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