Tens of thousands of people will get pink slips in the coming weeks as the long-term economic damage caused by government lockdowns in response to the coronavirus pandemic begin to ripple through the economy.
Disney announced it will lay off 28,000 employees. US airlines are poised to let up to 50,000 workers go. Allstate plans to cut around 3,000 jobs. Royal Dutch Shell will eliminate around 9,000 jobs globally. German auto-parts supplier Continental AG announced it will cut or shift some 30,000 jobs worldwide. Halliburton plans to eliminate an entire layer of management. Marathon Oil is set to launch round two of job cuts, shedding another 2,000 jobs. And Goldman Sachs said it will cut its workforce by about 400 jobs.
Meanwhile, politicians and pundits continue to fantasize about a quick economic recovery.
The looming job cuts in the airline industry tell the tale. Government stimulus checks and loans kept the airlines limping along but the gravy train is running out. People aren’t traveling. Debts are piling up.
Airlines were barred from laying off employees under terms of its March stimulus package. But economic reality has caught up. Bleeding red-ink, the airlines simply can’t afford to keep thousand on their payrolls. According to a Forbes article, “As the next staggeringly sad chapter of US airlines’ Covid-19 saga begins to unfold it’s becoming increasingly likely that at least one, and perhaps three or more will be forced into bankruptcy or, alternatively, into financially and strategically dubious mergers just to stay alive.”
In the second quarter alone, US airlines combined lost $13 billion on a GAAP (Generally Accepted Accounting Principles) basis and blew through $15 billion in cash reserves. Q3 will likely produce similar numbers.
Airlines have already shed tens of thousands of jobs by coaxing employees into early retirement or enticing them to voluntary quit. According to Forbes, the industry could eventually lose more than 100,000 jobs.
A transportation economist told Forbes it could take five or six years before we see a return to the passenger traffic and revenue the industry saw in 2019. The Forbes article speculated that even if Americans start traveling again, it will be difficult for the airline industry to respond.
“Now, without all those workers, and more importantly without millions of formerly regular travelers – especially high fare-paying business travelers who remain too afraid of Covid-19 to fly – the airlines will not be able to quickly spool up their operations should demand come roaring back at some point.”
Disney blamed prolonged closures at its California park and limited attendance at open parks for the layoffs. Disney head of parks Josh D’Amaro called it a “difficult decision” in a memo obtained by CNBC.
“For the last several months, our management team has worked tirelessly to avoid having to separate anyone from the company. We’ve cut expenses, suspended capital projects, furloughed our cast members while still paying benefits, and modified our operations to run as efficiently as possible, however, we simply cannot responsibly stay fully staffed while operating at such limited capacity.”
The company lost about $1 billion in Q2 and losses cascaded in Q3 coming in at $3.5 billion.
Disney’s financial woes have been “exacerbated in California by the State’s unwillingness to lift restrictions that would allow Disneyland to reopen,” D’Amaro said.
The recent waves of layoffs appear to be concentrated in industries hardest hit by coronavirus lockdowns, along with the energy sector that has seen demand plummet due to the contraction of the economy. But at some point, these layoffs will likely create a ripple effect into other areas of the economy.
“Job losses were at first concentrated in service-sector jobs, but in any economic downturn you’re bound to get some more pruning as corporations are trying to protect profit margins,” Brett Ryan, senior US. economist at Deutsche Bank Securities Inc. told Bloomberg. “You’ll see larger companies that may have been on a certain revenue trajectory before the downturn start to reevaluate.”
Unemployment numbers have improved significantly over the last couple of months as governments have lifted restrictions. This is to be expected as thousands of people laid off by temporarily shuttered businesses head back to work. But this new wave of layoffs reveals the deeper damage done by effectively closing down the economy for weeks on end.
As we reported last month, the lockdowns may have permanently scarred the labor market and there are signs of deep wounds that won’t quickly heal. In a nutshell, a lot of people will likely never return to work.
There is still a lot of optimism we could see a “v-shaped” recovery, but there are plenty of data points that undercut that narrative. Businesses are shutting down and bankruptcies are at a 10-year high. Americans owe billions in back rent. There is a rising number of over-leveraged zombie companies. And a tsunami of defaults and bankruptcies are on the horizon.
And as Peter Schiff said in a recent interview on RT, no matter what letter you stick in front of the word “recovery.”
“I don’t care what letter you want to use to describe it. My problem is with the word recovery. Because I don’t think we’ve recovered at all. Sure, there has been a recovery in the stock market in that the market recovered what it lost in the early days of COVID. And yes, this recession that we’re currently in began with a very substantial collapse. And yes, there’s been a bit of a bounce off of that collapse. But we’re still in recession. So, I don’t know if recovering to being in a less-severe recession than we were in at one point really qualifies as a recovery.”
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