Challenger, Gray & Christmas is a Chicago-based outplacement firm. It keeps track of announced job cuts as a way to predict future employment numbers. This means that when a company announces that it will lay off workers, the announcement goes into the index. Often, these cuts never happen. That being said, announcements of mass layoffs do impact consumer confidence, which drives new home sales.
Analysts use Challenger, Gray & Christmas data in a number of ways. First, these announcements tell analysts which industries are experiencing growth and which are experiencing declines. Secondly, analysts can look at the geographic concentration of job cuts and know the areas that will likely experience lower demand and increased credit losses. The Challenger, Gray & Christmas report isn’t really a market mover, but it’s a good data point for investors to use. It can also help generate trade ideas.
Highlights of the report
Planned job cuts fell 57% YoY (year-over-year) in July. They rose 19% from June. Generally, announced job cuts had been trending downward as the economy improved, but they started the year off with some high numbers. Job cuts in the energy industry seem to be picking up again. The real estate sector, especially home construction, is on an upswing. This is increasing the demand for workers. In fact, KB Home (KBH) and Lennar (LEN) both mentioned in their earnings conference calls that they were having a hard time finding skilled labor.
Implications for homebuilders
Homebuilders such as Lennar (LEN), PulteGroup (PHM), D.R. Horton (DHI), and Toll Brothers (TOL) are highly sensitive to the labor market and consumer confidence. In fact, consumer sentiment is a bigger factor for these builders than interest rates. An alternative to buying single stocks is to invest in the SPDR S&P Homebuilders ETF (XHB).