By Thomas Black – Feb 14, 2012 GMT+8
Global companies from NEC Corp. (6701) to PepsiCo Inc. (PEP) andAstraZeneca Plc (AZN) are chopping jobs more than three times faster than in 2011 as they brace for recession in Europe and a slowdown in China.
Announced workforce reductions surged to 94,369 through Feb. 10 from 26,561 a year earlier, according to data compiled by Bloomberg. Employers based in Western Europe accounted for the biggest group of job-cut disclosures, threatening to add to unemployment in the euro area already running at a 13-year high.
Such firings are now running at the quickest pace to start a year since a 2009 peak, when the European and U.S. economies shrank amid the deepest slump since World War II. Now,Europe’s debt crises may help spur a 0.5 percent contraction in the euro- area economy in 2012, based on economists’ estimates.
“The problems that the European Union has to deal with suggest that any recovery will be slow in coming and weak,” said Allen Sinai, chief global economist at Decision Economics Inc. inNew York. “Businesses have started to change their commitments in terms of their workforce in light of all the uncertainty.”
Slowing economies in Europe and some developing markets were cited by NEC President Nobuhiro Endo on Jan. 26 when the Tokyo-based maker of mobile phones and computers lopped 10,000 jobs. London-based drugmaker AstraZeneca’s Feb. 2 plan for 7,300 firings follows the elimination of 21,600 positions since 2007.
At Paris-based Alcatel-Lucent (ALU), where Chief Executive Officer Ben Verwaayen plans 500 million euros ($660 million) in cost reductions this year, job losses across Europe may reach 1,800, according to a union at the telecommunications-equipment supplier.
Europe’s weakness contrasts with a U.S. labor market in which economists project more job creation this year than at any time since 2006. Even with PepsiCo joining 26 other companies in North America in disclosing cuts in 2012, fewer than 25 percent of the 8,700 jobs being trimmed at the Purchase, New York-based company will be in the U.S.
Joblessness in the U.S. slid to 8.3 percent in January amid the fastest growth in nonfarm payrolls in nine months. December’s unemployment rate in the euro area reached 10.4 percent, the highest since June 1998.
“We look at the same data as everybody else,” said Michael Lamach, chief executive officer of Swords, Ireland-based Ingersoll Rand Plc. (IR) “But the part that we probably interpret less positively is Europe.”
Europe revenue may fall as much as 12 percent in 2012 at the maker of Trane air conditioners as business dwindles and the euro weakens, Lamach said. Ingersoll Rand said last week it expects $50 million in restructuring costs worldwide, including in Europe. The company didn’t give a regional breakdown.
Gross domestic product in the euro area probably fell 0.4 percent in the final three months of 2011, based on the average of 42 estimates compiled by Bloomberg before a Feb. 15 European Commission report.
Adding to the squeeze on global companies is decelerating growth in China, whose projected 8.5 percent expansion would be the least since 2001 after the government moved to squash inflation and prick a real estate bubble.
The EU has been rocked by concern that Greece may default on its sovereign debt and pull out of the euro pact.
Countries such as Greece, Portugal, Spain and Ireland have all been straining to meet sovereign debt payments because of budget deficits that widened after the last recession crimped tax receipts. Portugal, Ireland and Greece received EU bailouts in exchange for pledges to slash spending.
“The confidence shock on financial markets in the second half of last year has translated in a drop in orders and activity,” Clemente De Lucia, a BNP Paribas economist, said in an interview from Paris. “The employment situation remains tough as business sentiment on activity hasn’t recovered.”
Greece’s latest crisis has rekindled the debt concern, with a 14.5 billion euro bond payment due on March 20 for which the government needs international assistance. Parliament approved austerity measures early today to secure the aid as police battled rioters in Athens protesting those steps, which include state job cuts.
While an EU recession will last only a couple of quarters before growth resumes in 2012’s second half, the pullback in public-sector spending may mean slower European expansion persists for years, said Gerd Hassel, an economist at BHF Bank AG in Frankfurt.
“It’s simply the austerity measures that dampen consumer expectations,” Hassel said in an interview. That backdrop means CEOs “are very reluctant to increase their production.”
Global companies in the Standard & Poor’s 500 Index are losing their advantage in earnings growth over domestic-focused peers as the U.S. rebounds and overseas economies slow, saidJonathan Golub, chief U.S. market strategist at UBS Securities LLC in New York.
Profits among S&P 500 global companies are now growing only 0.5 percentage point faster than the other group, down from 8 percentage points last quarter, Golub said.
“It’s been a very powerful trend throughout the recovery and it’s basically fallen off a cliff,” he said in an interview.
Some of the biggest job cuts have more to do with company or industry conditions than Europe’s economy. AMR Corp (AAMRQ).’s American Airlines plans about 13,000 firings in bankruptcy. Espoo, Finland-based Nokia Oyj (NOK1V) is eliminating 4,000 jobs in its home country, Hungary and Mexico to shift manufacturing to Asia as the mobile-phone maker falls behind rivals such as Apple Inc.
For others, such as AstraZeneca, the shrinking payrolls are the result of pressures such as the expiration of pharmaceutical patents on top of waning consumer demand and curbs on European government spending, said Alistair Campbell, health-care analyst at Berenberg Bank in London.
“You’ve got austerity measures in the background, particularly hard in Europe, with uncertainties around what that might do this year,” Campbell said in an interview. “Companies are generally cautious about the outlook this year.”
Pull the Trigger
CEOs have learned to pull the trigger quickly on cuts to keep profit margins in line with expectations when economic growth cools, Decision Economics’ Sinai said. Stock prices signal investors’ confidence that earnings will hold up, he said in an interview.
This year’s 6.8 percent gain in the Stoxx Europe 600 Index through Feb. 10 actually exceeded the 4 percent advance for a year earlier. The S&P 500 also climbed 6.8 percent this year before today.
Ingersoll Rand is among the companies moving now to prepare for a slump that may be worse than economists’ forecasts, with steps that include “factory consolidation” in China. The company also has closed two plants in North America.
After posting the largest decline in the S&P 500 Industrials Index last year, the shares rose 25 percent through last week, the third-biggest increase in the gauge of 61 companies.
“We’re a little bit more bearish on Europe at this point,” Lamach said. “We hope to be proven wrong.”
To contact the reporter on this story: Thomas Black in Dallas at email@example.com