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Why Investors Need to Track the Challenger Job-Cut Report

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Challenger, Gray & Christmas

The Challenger Job-Cut Report is issued monthly by Challenger, Gray & Christmas, Inc., a leading global outplacement firm. This report provides information on corporate layoffs based on data from state departments of labor. However, the report must be assessed with caution, as it doesn’t differentiate between immediate and long-term layoffs. Also, it is not adjusted for seasonal variation.

The Challenger, Gray & Christmas report for March was released on April 2, 2015.

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Job cuts come down in March

Following two consecutive months of job cuts in excess of 50,000 in the first two months of 2015, corporate layoffs stood at 36,594 in March 2015. March job cuts were 27.6%, down from February 2015 but increased by 6.4% compared to March 2014. March 2015 marked the fourth consecutive year-over-year increase in job cuts.

Industrial goods manufacturers saw the maximum payroll reductions of 9,389 in March 2015, followed by the retail sector that saw 6,640 job cuts in the month.

First-quarter layoffs

According to the latest release, most of the job cuts were triggered by declining oil prices. Employers announced 140,214 layoffs in the first quarter of 2015, up 15.6% compared to the first quarter of the prior year.

In terms of sectors, the energy sector announced the maximum layoffs in the first quarter of 2015. However, the pace of downsizing appears to have come down in the energy sector, as 1,279 job cuts were announced by energy companies in March 2015. This is down substantially from 16,339 announced in February. The retail sector announced the second-highest layoffs of 22,502 in the first quarter of 2015, up from 18,231 in the first quarter of 2013.

Impact of job cuts on retailers

The rise in job cuts in the first quarter of 2015 could adversely impact consumer spending on discretionary products such as apparel, footwear, electronics, and accessories. This would negatively impact companies in the retail sector such as Macy’s (M), Nordstrom (JWN), Kohl’s Corporation (KSS), and TJX Companies (TJX). These retailers together constitute 4.0% of the SPDR S&P Retail ETF (XRT).

Apart from assessing the job situation in the economy, it is also essential to have an understanding of the income and savings levels in the economy.

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