Tue, Sep 29, 2015 page15

• Read beyond job-cuts, strategists urge

  REDUNDANT: Analysts suggest that job figures could be deceptive, as the market is shifting and a return to profit is forecast for next year in the automaking industry

  • Bloomberg
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  In the span of just 10 days, four major US companies announced plans for 40,000 job cuts. And this quarter is the worst since the recession with 79,000 total.

  However, read beyond the headline numbers, because hiring remains strong, and the US government might report this week that unemployment remained at its lowest levels since 2008.

  The juxtaposition of apparently contradictory data shows the divergence within the corporate US as the third quarter draws to a close.

  While automakers and retailers enjoyed soaring profits, earnings at energy, industrial and materials companies were crushed by the rout in crude prices and a slowdown in emerging markets.

  “We’re experiencing a bout of economic weakness that is hitting certain portions of the economy, but not everyone,” RBC Capital Markets chief US market strategist Jonathan Golub said.

  “If you look at the jobs data, nothing is falling apart,” he said.

  The tally of job cuts announced since July 1 in North America — including 5,000 at Caterpillar Inc, 2,000 at Halliburton Co, 30,000 at Hewlett-Packard Co and 3,000 at Johnson Controls Inc — is the biggest number since 2009. It is more than double the 32,000 reductions in the same period last year and 36,000 in 2013, according to data compiled by Bloomberg from company statements and filings.

  The number reflects the extend to which the drop in energy prices has trickled through the industry, from oilfield-service providers like Halliburton to big manufacturers such as Caterpillar, the world’s biggest maker of construction and mining machinery, that are dependent on demand from drillers.

  It also tells the decline of a tech giant, Palo Alto, California-based Hewlett-Packard, which is shrinking its workforce ahead of a split into two companies to compete with nimbler rivals. Johnson Controls is spinning off its automotive interiors business to focus on its building-efficiency and batteries units.

  Older technology companies such as Hewlett-Packard behave like large industrial companies, Golub said. Other mass job cuts unveiled last week — 1,100 jobs cuts at Groupon Inc and 1,200 at Marvell Technology Group Ltd — are related to problems specific to each company and do not fit in a particular trend, he said.

  “A fifth of the market looks like it’s in recession while the other 80 percent is perfectly normal or even strong,” he said.

  Earnings at Standard & Poor’s 500 Index members are predicted to drop 6.5 percent in the third quarter, chiefly because of the collapse in profitability in the energy industry. Excluding energy, analysts see profit rising 0.5 percent gain, according to estimates compiled by Bloomberg.

  Bright spots include automakers and their suppliers, whose earnings probably jumped 30 percent, and retailers, with 14 percent growth, the predictions show.

  Meanwhile, earnings per share probably dropped by 74 percent at Houston-based Halliburton; by 53 percent at Peoria, Illinois-based Caterpillar; by 9 percent at Hewlett-Packard and by 3 percent at Johnson Controls, based on the projections.

  The energy and manufacturing slowdown is likely to temper the US recovery without derailing it, said Jay Bryson, global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. The economy is forecast to expand 2.5 percent this year, the highest rate since 2010, and accelerate to 2.7 percent next tear, according to analysts’ estimates compiled by Bloomberg.

  The US job market is also likely to continue to slowly improve, with unemployment projected to fall to 4.9 percent at the end of next year for the first reading of less than 5 percent since February 2008. The Labor Department probably is likely to say on Friday that this months rate was unchanged at 5.1 percent.

  “There’s really been no significant employment deceleration in our economy,” Bryson said.
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