U.S. companies slashed nearly 60,000 jobs Monday, adding impetus to the Obama administration’s efforts to reach agreement on a plan to pump $825 billion into the economy over a two-year period.
But it’s unclear whether even that massive influx of funding and tax cuts would be enough to get companies hiring again in the near term.
The cuts by firms including Caterpillar, General Motors, Texas Instruments, Home Depot, Sprint Nextel and Pfizer brought the total of jobs shed so far this month to 187,550, more than November or December and well over double the number of January 2008, according to employment firm Challenger, Gray & Christmas Inc.
Analysts believe that Obama’s strategy of pouring money into state and local governments could prevent layoffs and furloughs of public sector employees, including teachers, police officers and other government workers.
Economists have estimated that the plan will protect or create 3 million to 4 million jobs in the next two years.
But the U.S. economy lost 2.6 million jobs last year and could lose 2 million more during the first half of this year.
The stimulus plan “is as much psychological, to get people to think that even if we’re in a recession, it’s going to be temporary so I don’t have to lay people off,” said Gus Faucher of Moody’s Economy.com. “It’s designed to provide a psychological boost.”
But that won’t be much help getting disparate companies such as earth-moving equipment maker Caterpillar Inc., computer software designer Microsoft Corp. and home improvement retailer Home Depot Corp. motivated to stop cutting and start hiring, analysts said.
Caterpillar, which said Monday that it would fire 5,000 workers on top of 15,000 in job reductions previously disclosed, needs to see signs that industrial production is stirring, such as increased prices for minerals, metals, energy and other commodities, said Kristin Kubacki, an analyst with Avondale Partners in St. Louis.
When that happens, Kubacki said, the company will be able to sell its heavy equipment for use in digging mines and in oil and gas exploration. Even then, however, Caterpillar dealers will need to sell an extensive inventory of already built backhoes, excavators and other equipment before it ramps up production.
The Obama stimulus plan would also fund easy-to-implement renovation projects that would generate jobs for currently idled construction workers, and lead to new orders for hard-hit manufacturing companies that provide building supplies and other raw materials. But that won’t be big enough to help Caterpillar.
“Equipment right now is plentiful,” Kubacki said. “It’s a long road for that money to reach the factory floor at Caterpillar.”
Home Depot said Monday that it would cut about 2% of its workforce, or 7,000 jobs, and close about four dozen specialty stores, including all of its Expo Design Center stores.
It would probably take a big increase in consumer confidence before the struggling retailer would start hiring again in any numbers, said Ken Goldstein, an economist with the Conference Board in New York.
“What we need to see is the consumer starting to spend money again. About the only thing you see Home Depot selling right now is duct tape, and that’s not good,” Goldstein said.
Microsoft, which said Thursday that it would slash as many as 5,000 jobs over the next 18 months, its first mass layoff, will be anticipating more technology spending.
“They’ll be looking for a bottoming in the semiconductor market, because that’s what goes inside computers,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Ore. That will be an indicator of higher computer sales and thus more need for Microsoft’s core product, software.
At the same time, Microsoft executives will be watching for any lift in information technology investment by business, figuring that the Redmond, Wash., giant will increase sales once companies start to replace computers.
The stimulus program probably would help people who have lost their jobs by extending unemployment benefits and increasing funding for food stamps.
In addition to government spending, the stimulus plan includes business tax incentives that would permit companies with losses in 2008 to offset them by getting refunds on taxes paid over the previous five years -- a provision, known as a “carryback,” that currently applies only to the previous two years.
Companies would also be able to get tax breaks for some capital expenditures and accelerate the depreciation of others.
Economists say tax incentives of that sort are not as “stimulative” as direct government spending but are important because they can take effect quickly. And if they help restore business confidence in the short run and save some more jobs, so much the better.
“We believe that the stimulus package can keep the employment floor about 2 million higher than it otherwise would have been, and prevent the unemployment rate from breaching 10%,” said Nigel Gault, chief U.S. economist at IHS-Global Insight in Lexington, Mass.
To succeed, the package would need to do all that and more.
Employment reductions over the last year have pushed the nation’s jobless rate up to 7.2% in December, compared with 4.9% in December 2007.
Goldstein of the Conference Board believes that the jobless rate could approach 9% by the end of this year, fueled by the cutbacks announced Monday and future losses.
Drug maker Pfizer Inc., which announced that it would acquire rival Wyeth for $68 billion, also said Monday that it would cut about 8,000 jobs from its current workforce. Once the companies are merged, thousands more will lose their jobs.
Sprint Nextel Corp. said it would eliminate 8,000 jobs by the end of March. Texas Instruments Inc. said it would dump 3,400 positions. And General Motors Corp. said it would cut shifts in the second quarter at plants in Ohio and Michigan, eliminating about 2,000 jobs, and decrease production at other plants in the U.S. and Canada.
Past downturns indicate that job losses will continue for at least six months after the recession bottoms out, UCLA economist Edward Leamer said. Recessions -- defined by an extended decline in gross domestic product -- typically hit their low point in the third quarter of the downturn, but the job losses continue for at least another two quarters, Leamer said.
Companies will see sales pick up and stop firing workers, but they won’t do much hiring until they have seen several quarters of revenue growth, he said.
The remaining elephant in the room is housing, where data presented a glimmer of good news Monday.
The National Assn. of Realtors reported that existing home sales jumped 6.5% to 4.7 million units in December, well above the 4.4 million median of analysts’ forecasts. It was the largest monthly increase in almost seven years. The sales were most likely spurred by a combination of low prices on foreclosed houses and low interest rates for loans less than $410,000.
The numbers led some experts to say that the housing market may begin to recover in a few months -- a change that would begin to repair some of the worst economic damage.
“When we are in the depths of a recession, we can’t imagine that it will ever end,” Leamer said. “But it will.”
Times staff writer Michael Muskal contributed to this report.