Comstock Partners, Inc.October 06, 2011
Jobs! Jobs! Jobs! Business Roundtable and Challenger
The latest releases by the Business Roundtable's (BRT) CEO survey results, and the layoff announcements by Challenger, Gray, and Christmas do not paint a very positive picture for the economy. We recently discussed the lackluster employment changes announced by the National Federation of Independent Businesses (NFIB) in a recent comment. Historically, during recoveries the small businesses represented by NFIB account for about 75% of new jobs.
The Business Roundtable is an association of 140 chief executives of leading U.S. companies with over $6 trillion in annual revenues and more than 14 million employees. BRT member companies comprise nearly a third of the total value of the U.S. stock market and invest more than $150 billion annually in research and development-nearly half of all private U.S. Research & Development (R&D) spending. The companies pay $163 billion in dividends to shareholders and generate an estimated $420 bn in sales for small and medium sized businesses annually. BRT companies give nearly $9 billion a year in combined charitable contributions.
However, since the fourth quarter of 1972 (when founded) the most important thing that the BRT does is a survey once a quarter which provides a forward looking view of the economic outlook of BRT's 140 member CEOs. The survey this past quarter (3rd quarter) of 2011 relative to the survey results of 2010, 3rd quarter took a big downturn. The "overall survey", which shows the CEOs economic outlook survey values, dropped from 109.9 in the 2nd quarter of 2011 and from 86.0 in the 3rd Qtr of 2010 (one year earlier) to 77.6 this quarter. This "overall economic survey" index averaged over 90 from 2004 to 2007.
One of the other major changes from one month ago was the answer to the question, "How do you expect your company's U.S. employment to change over the next 6 months?" The response from 24% of the CEOs surveyed, answered that question with "LOWER!!" That is 13% greater than the "lower" response just one month before!! And 40% responded "Equal", meaning that the majority of the BRT CEOs do not expect to hire new employees over the next six months. The questions regarding "expected sales" and "expected capital spending" over the next 6 months were both a smaller percentage of CEOs expecting "higher sales" and "higher capital expenditures" and a larger percentage of CEOs expected "lower sales" and "lower capital spending". All in all, the latest report by BRT was much worse this past quarter than almost any time except during the "financial crisis" in 2008-2009.
Challenger, Gray & Christmas, Inc.
Challenger, Gray & Christmas, Inc. (Challenger) is in the business of keeping track of job cut announcements. This past September they just reported that layoffs surged to the highest total since April 2009 at 115,730 or 212% higher than one year ago where employers announced just 37,151 layoffs. In fact, this is the first announced monthly layoffs of over 71,500 over the past 21 months. The layoff announcements for the 3rd quarter were 233,258, the highest quarterly total since the third quarter of 2009.
There were heavy reductions planned by the military accounting for a large portion of September job cuts, signaling what may lie ahead as the Federal Government seeks across-the-board cuts in spending. If the Federal Government takes the same path as the State and Local Governments, this will contribute to much slower or negative growth for the U.S. economy.
The jobs market is a leading indicator, and if the above statistics continue or get worse, this would just bolster our belief that the economy will enter a "double-dip," with the stock market declining to much lower levels as earnings and growth continues to be ratcheted down. We still do not expect any rally in the S&P 500 to break through the resistance of 1250, and we still believe that we will eventually test or break the March 2009 low of 666.