Challenger, Gray & Christmas keep tabs on announced job cuts as a way to predict future employment numbers
Challenger, Gray & Christmas is a Chicago-based outplacement firm that keeps track of announced job cuts. This means that when a company announces it will lay off workers, that announcement goes into the index. Often, these cuts never happen. That said, announcements of mass layoffs do affect consumer confidence, which drives new home sales.
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Analysts will use the Challenger, Gray & Christmas data in a number of different ways. First, these announcements tell analysts which industries are experiencing growth and which are experiencing declines. Second, analysts can look at the geographic concentration of job cuts and know which areas are likely to experience lower demand and increasing credit losses.
The Challenger, Gray & Christmas report isn’t really a market-mover, but it’s a good data point for investors to use and can also help generate trade ideas.
Highlights of the report
Planned job cuts increased 19% in September—the fourth consecutive year-over-year increase. Until then, announced cuts had been generally trending downward. This puts the first nine months of 2013 pretty much on the same annual pace of the first nine months of 2012. The real estate sector (especially homebuilders) is on an upswing, which is increasing demand for workers. In fact, KB Home (KBH) and Lennar (LEN) both mentioned on their third quarter earnings conference calls that they were having a difficult time finding skilled labor.
President Obama recently delayed the employer mandate for Obamacare by a year. The report mentioned fears of companies substituting part-time workers for full-time workers, which will be something to watch. Recent government jobs reports also noted a large increase in part-time workers who would rather be working full-time, which suggests these fears are real.
Implications for homebuilders
Homebuilders like Lennar (LEN), KB Home (KBH), Standard Pacific (SPF), Toll Brothers (TOL), and Ryland (RYL) are highly sensitive to the labor market and consumer confidence. KB Home, on its latest earnings release, even said that consumer confidence is a bigger driver of its business than interest rates. Food for thought.
So far, we’ve seen the consumer confidence numbers remain resilient in the face of higher interest rates, although the Bloomberg Consumer Comfort index has been declining. The single biggest thing that can turn consumer confidence south is another round of corporate cost cutting through layoffs. We’re already seeing the financial services sector lay off people as the refinance boom comes to an end.
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