Monday, November 10, 2008

More job losses coming

There are a number of stories coming out today, revealing some big job cuts in U.S. companies. Again, this shows that the U.S. economy is in some deep, smelly, crap, with businesses and consumers running scared.

Let us start with Wall Street. CNBC is reporting some rumors that Wall Street could be slashing some 70,000 workers "in an effort to cut costs in the face of a sharp economic downturn and credit constraints, according to a published report." Around 150,000 financial jobs have been lost worldwide, with investment banks and trading businesses the hardest hit. Then again, Wall Street should be starting to cheer, since the U.S. Treasury is giving away another $40 billion in American taxpayer money to AIG.

Now let us go to DHL. In the New York Times, DHL has announced that they are cutting 9,500 jobs in its U.S. operations, conceding the U.S. shipping market to its rivals FedEX and UPS. DHL will be turning over its domestic air-cargo service to UPS, close its U.S. Express ground hubs, reducing the number of stations from 412 to 103. DHL has already eliminated 5,400 jobs since January. So for this year, DHL has eliminated 14,900 jobs. And the year isn't finished yet.

Nortel is cutting 1,300 jobs. According to The New York Times, the telecommunications company Nortel announced a third-quarter loss of $3.4 billion, saying that it will cut its own workforce by around 5 percent, or 1,300 jobs. It appears that much of this $3.4 billion loss is coming from both a write-down in the value of its business, as well as some deferred tax credits the company will not be able to use. Nortel has been trying to sell its optical communications business, but there are no buyers. The company employs around 30,000 workers, and has said that it will "freeze salaries, reduce the use of consultants and review its real estate holdings." Nortel has around $2.6 billion in cash, however the company is suspending dividends on preferred shares in order maintain its cash levels. To sum it up, Nortel is in trouble.

Circuit City is going bankrupt. This is also from The New York Times. The consumer electronics company Circuit City has filed for bankruptcy protection:

Circuit City, the ailing electronics retail chain, filed for bankruptcy protection on Monday, underscoring the tenuousness of the nation’s retailers.

Vendors — increasingly worried about Circuit City’s ability to pay for its purchases — choked the company’s operations as the critical holiday season got under way and ultimately led the company to seek bankruptcy protection.

Circuit City said it hoped to win back its vendors’ support by using a $1.1 billion line of credit to pay for any new merchandise and services that it receives.

“The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively,” James A. Marcum, vice chairman and acting chief executive, said. “In the meantime, our stores remain fully operational, and our associates are focused on consistent and successful execution this holiday season and beyond.”

The company, the nation’s second-biggest consumer electronics retailer, has been limping along for months, struggling to compete against its bigger rival, Best Buy, and Wal-Mart Stores.

Its shares have lost more than 90 percent of their value since the beginning of the year. Its stock price has been so abysmal — it had an average closing price of less than $1 over 30 consecutive trading days — that the New York Stock Exchange recently warned it was not high enough for listing.

Circuit City is stuck in the same position as Mervyn's is currently in. Mervyn's was a mid-level retail clothing and housewares store that couldn't compete against the low prices of Wal-Mart, nor the higher quality and value of Macy's. As a result, the company went bankrupt. Circuit City is also a mid-level consumer electronics retail store that cannot compete on the low prices of Wal-Mart, nor the higher quality and value of Best Buy. Thus, Circuit City was being squeezed on both ends and, just like Mervyn's, is going bankrupt. Circuit City has already closed down 155 stores last week, and plans to reduce its workforce by around 20 percent through "store closing and job cuts at its corporate offices." If this holiday retail season is going to be a major falling off the cliff, then I seriously doubt that Circuit City will survive into next year.

As companies start cutting back on spending and production, they are also going to lay off more workers in the next couple of months. This U.S. recession has started as a long, slow slide, but we are now deep in it. And it is probably going to take a very long, slow climb just to get out of it. So there is going to be a lot more bad economic news coming in the future.

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