The year of 2017 was one of historically low layoff rates. U.S.-based employers announced 418,770 layoffs, the lowest annual total since 1990, according to a report released by outplacement consulting firm Challenger, Gray and Christmas Inc. Concurrently, hiring announcements were the highest on record with employers stating plans to hire over 1,100,000 new employees, a 27% increase from the 868,702 announced in 2016.[i]
Amid the broad-based expansion, there are often ‘winners’ and ‘losers.’ To gauge the sectors that may be running counter to the trend, S&P Global Market Intelligence examined discharge notices filed under the Workers Adjustment and Retraining Notification (WARN) Act.
WARN notices are helpful for evaluating mass layoff trends and performing labor market assessments. The federal WARN Act requires business enterprises with 100 or more employees to provide a 60-day advance written notice of a plant closing or mass layoff affecting 50 or more employees at a single location. Those who have worked fewer than six months in the last 12 months and those who work an average of fewer than 20 hours a week are generally excluded from the tally. [ii] Each state has a designated office in which federal WARN notices must be filed, and several states, including California, Illinois, and New York, have additional notification requirements.
Consumer discretionary, industrials feel layoff pain
According to S&P Global Market Intelligence’s analysis, the consumer discretionary and industrial sectors announced the largest percentage of total mass layoffs in the 10 most populous states – California, Texas, Florida, New York, Illinois, Pennsylvania, Ohio, Georgia, North Carolina, and Michigan – in 2017. [iii]
Consumer discretionary companies announced the largest percentage of total layoffs in six of the 10 most populous states — Michigan, Ohio, Florida, North Carolina, Pennsylvania, and California — and the second-highest percentage in the remaining four — Illinois, New York, Texas, and Georgia. Industrial companies saw the highest percentage of layoffs in two of the analyzed states — New York and Georgia — and the second-highest percentage in six others — Ohio, North Carolina, Michigan, Pennsylvania, Florida and California. Meanwhile, financials, real estate, utilities, and telecommunication services announced the smallest percentage of total job cuts across the board.
Figure 1: 2017 most populous states layoff announcements
Healthy firms eye layoffs as cost-cutting moves
On a company-level, S&P Global Market Intelligence assessed the credit health of the firms announcing mass layoffs by examining probability of defaults (PDs) with its PD Fundamental model, a statistical model that predicts the likelihood of a firm defaulting on its debt or entering bankruptcy protection over a one-to-five year horizon.
The analysis found that many job cuts announcements came from financially healthy firms with one-year PDs under 0.5%, which is approximately the threshold between investment grade and speculative grade equivalents. [iv] Sears Holdings Corp. with a PD of 25.37% and the bankrupt Central Grocers Inc. were among the exceptions.
Figure 2: 2017 largest layoff announcements
Labor market expectations cool amid rate hike worries
One of the major questions for 2018 is whether tax reform and robust economic growth will lead to the Federal Reserve hiking rates and the labor market cooling. With the economy nearing full employment, a slowdown in job growth is inevitable. Retail will continue to find its standing in 2018 through the means of store closure and layoffs, while the industrial workforce will steadily fall short to automation. Uncertainty surrounding the future healthcare landscape can also spur healthcare companies to reduce their workforce to remain cost competitive.
The following people contributed to analysis for the blog: Mrinal Vij, Ishita Mishra, Salman Samee, Ashleigh Cotting, Bryan De Las Salas, Chris Hudgins, Tom Manzella, Andrew Barnes and Imran Tahir.
[i] Challenger, Gray & Christmas, Inc. (n.d.). 2017 Year-End Job Cut Report: Lowest Annual Total Since 1990 [Press release]. Retrieved March 07, 2018.
[ii] Plant Closings & Layoffs. (2016, May 06). Retrieved March 07, 2018.
[iii] Retrieved March 07, 2018, from S&P Global Market Intelligence, as of January 1, 2017.
[iv] Mapping Letter Grade Score to Probability of Default Technical Reference Guide. Published November 2017.