Challenger, Gray & Christmas
The monthly report published by Challenger, Gray & Christmas, Inc., counts and categorizes announcements of corporate layoffs based on mass layoff data from state departments of labor. We must approach the job cut report with caution. It doesn’t distinguish between layoffs scheduled for the short term or the long term, or whether job cuts are because of attrition or actual layoffs. Also, the job cut report doesn’t include jobs eliminated in small batches over a longer period. Unlike most economic data, this indicator isn’t adjusted for seasonal variation.
The job cut report is basically a rehash of the weekly jobless claims report, but it provides additional insight into where layoffs are occurring. There’s industry and geographic detail here that’s not available in weekly jobless claims.
Although we could use the Challenger Job-Cut Report as a leading indicator for new jobless claims, not all layoff announcements result in job losses in the near term. Some companies will announce layoffs that will take place further into the future. In a situation such as this, people may quit voluntarily or the company’s situation may change in order to keep their employees.
For March, layoff announcements totaled only 34,399, well down from February’s 41,835 and from the 49,255 we saw in March last year. This is one of the lowest readings, and it points to positive momentum in the jobs market. The first quarter as a whole, at 121,341, is the lowest first quarter since 1995.
First-quarter job cuts were led by the retail sector, where employers announced 18,231 job cuts through the first three months of 2014, including 2,989 in March. The financial sector followed closely, with 15,306 job cuts announced over the first three months of 2014. Neither retail nor financial firms saw the heaviest job cuts last month, however. The top job-cutting sector in March was healthcare, which announced plans to reduce payrolls by 5,768, bringing its year-to-date total to 10,984, which ranks fourth among all industries.
The report is an indicator investors use to determine the strength of the labor market. As we can see in the chart above, the report is broken down by industry, which is valuable for providing insight into these trends that will likely affect the prices of stocks in each of these industries.
For the year so far, the retail and financial sectors have seen the highest number of job cuts. This adversity also reflects in the performance of the major exchange-traded funds (or ETFs) tracking these sectors. The Consumer Discretionary Select Sector SPDR Fund (XLY), with holdings in retail companies like McDonald’s Corporation (MCD) and Nike, Inc. (NKE), is a popular ETF in the consumer discretionary category, while the SPDR Financial Select Sector Fund (XLF) and the iShares Dow Jones US Financial Sector Index Fund (IYF) are popular ETFs in the financial sector category.