Layoff Numbers Paint Unclear Economic Picture
News that the overall 2011 layoff pace is slower than 2010 comes as little comfort to the 41,000+ Americans who were laid off in June. That number represents an 11 percent increase over May's numbers, which were themselves a 2 percent increase over April's numbers.
Despite momentum which suggests the economy is worsening, as layoff numbers increase rather than decrease, global outplacement consultancy firm Challenger, Gray & Christmas reports that the overall layoff pace is its lowest since 2000. Second quarter results were some 12 percent lower than the first quarter, and 1.2 percent lower than second quarter 2010.
Employers have now announced 245,806 planned job cuts this year, 17.4 percent lower than the 297,677 cuts announced in the first half of 2010. The six month total is the lowest since 2000, when 223,421 job cuts were tracked between January and June.
“The employment picture remains a bit cloudy. Continued slowness in the pace of job cuts is certainly promising. However, hiring is coming in spurts and is not quite robust enough to make a significant dent in unemployment,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
“We saw relatively strong payroll gains in February, March and April, only to see much slower growth in May. The next three or four months of employment and hiring data will be important indicators of whether the expansion has prematurely hit the brakes or if the dips in job creation are simply bumps on the road to recovery,” he added.
“As for the remainder of the year, we don't see much indication of a second-half surge in job-cut activity. The hiring picture is a little cloudier. While the government attempts to enact policies that will spur job creation, it really comes down to consumer and business demand for products and services and, right now, that demand remains relatively weak,” said Challenger.
Bullish: Traders who believe that layoff pace going down means the economy is on its way back might want to consider the following trades:
- Trucking Companies are a good place to start for any growing economy. Presumably, a booming economy means more manufacturing, more selling, more buying, and therefore, more shipping. That shipping is primarily going to be via truck. Look at stocks like JB Hunt Transport (NASDAQ: JBHT) and Arkansas Best (NASDAQ: ABFS) to maybe head up.
- Another feature of a growing economy is more free cash to spend on luxury items, including vacations. Given the length of the recession, it's likely that some families have gone years without a nice trip somewhere. Look at travel stocks like TravelZoo (NASDAQ: TZOO), Expedia (NASDAQ: EXPE) and PriceLine (NASDAQ: PCLN) to benefit.
Bearish: Traders who believe that even slowing the pace of layoffs doesn't do enough to turn overall unemployment data around may consider taking positions in the following:
- If you're feeling frisky and see the entire market heading south, you could try the ProShares UltraShort S&P 500 (NYSE: SDS). This should get you twice the rate of decline in the S&P 500, making it higher risk and higher reward.
- An even riskier play could be to invest in short-term treasury bills. Assuming the US does not default (risky), and assuming the government cannot come to a political agreement on the long-term debt fix (riskier), you might see that stalemate add to a still-declining economy lead to the federal government turning over short-term, riskier bonds at higher yields.
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