A New Round Of Corporate Layoffs?

Defense contractor Northrop Grumman cut 642 people from its ship building operation yesterday. That follows another 300 cuts from the same operation last month. The reason given was that the Navy has slashed orders from the company. That may not be the end of job cuts from companies that serve the defense industry. The Department of Defense says it will cut costs for the next budget.

The Northrop Grumman number does not seem like much, unless someone is among the numbers of those who lost their jobs.

There are likely to be more, and perhaps many more, firings to be announced by large companies. The level is not likely to match that of 2008 when firms like GM chopped tens of thousands of people. But the economy, mergers and government spending are creating a new “downsizing” environment.

The first and most obvious reason that more employees will lose their jobs is what appears to be the start of a second recession. The only blessing, if it can be called that, is the lack of hiring during that last dip. Companies large and small have taken workforces down to the bone. Many have opted to use part-time workers who do not require the payment of health benefits. These people are also easy to let go. They need no severance. It costs little if anything to send them to the unemployment lines. Corporations have already began to panic about the economy. That creates a new formula for the practices that put people out on the streets.

Another reason that big companies are likely to fire is that large number of consolidations that have been part of the normal course of M&A activity. Huge drug companies such as Merck (NYSE: MRK) which have taken over rivals, are able to fire people as part of the process of removing “redundant” workers. It is  hard to imagine that the eventual buyer of 3Par (NYSE: PAR) whether it is Dell (NASDAQ: DELL) or Hewlett-Packard (NYSE: HPQ)  will keep the smaller company’s workforce intact.

Corporate raiders are still fond of firing people as a way to improve margins. It is unlikely that if Ron Burkle takes over Barnes & Noble (NYSE: BKS) that he will keep all the firm’s bricks-and-mortar stories open.

The government–whether it is at the state, municipal, or federal level–has taken up the practice of austerity. It is obvious why that is part of the cuts made in California. The Administration has already said that it will cut discretionary spending, to some extent to play to a voter base that believes federal budgets have become bloated again.

Some firings are prophylactic. Others are done out of necessity. Whatever the reason, many people will lose jobs in the second half and some of those will be through mass layoffs.

Douglas A. McIntyre