Voodoo Economics: How Does American Express (AXP) Fire 7,000 People?

American Express (AXP) decided to pole axe 7,000 poor souls. As is true with most mass firings, it is driving the company’s stock higher, in this case by 5% to just over $26. It still trades near the bottom of its 52-week range.

The layoffs cover 10% of the American Express work force which raises the question of what all of them have been doing up to now. That may appear to be a naive question, but perhaps not.

According to the company, the people leaving "do not interact directly with customers." That means that they are administrative, IT and financial types and, unless Amex was overspending, there should not be a great deal of flexibility in that head count.

Another set of costs being cut is the use of consultants who are usually a better investment when a company is suffering. Getting opinions about how to improve a thriving business is not typically a good use of capital. Amex also says it is cutting travel and entertainment costs. Those ski trips and junkets to Vegas are over.

Amex should not be cutting these costs because it should not have had most of them in the first place.

Douglas A. McIntyre