by Peter Schiff, Schiff Gold:
Tens of thousands of people will get pink slips in the coming weeks as the long-term economic damage caused by government lockdowns in response to the coronavirus pandemic begin to ripple through the economy.
Disney announced it will lay off 28,000 employees. US airlines are poised to let up to 50,000 workers go. Allstate plans to cut around 3,000 jobs. Royal Dutch Shell will eliminate around 9,000 jobs globally. German auto-parts supplier Continental AG announced it will cut or shift some 30,000 jobs worldwide. Halliburton plans to eliminate an entire layer of management. Marathon Oil is set to launch round two of job cuts, shedding another 2,000 jobs. And Goldman Sachs said it will cut its workforce by about 400 jobs.
Meanwhile, politicians and pundits continue to fantasize about a quick economic recovery.
The looming job cuts in the airline industry tell the tale. Government stimulus checks and loans kept the airlines limping along but the gravy train is running out. People aren’t traveling. Debts are piling up.
Airlines were barred from laying off employees under terms of its March stimulus package. But economic reality has caught up. Bleeding red-ink, the airlines simply can’t afford to keep thousand on their payrolls. According to a Forbes article, “As the next staggeringly sad chapter of US airlines’ Covid-19 saga begins to unfold it’s becoming increasingly likely that at least one, and perhaps three or more will be forced into bankruptcy or, alternatively, into financially and strategically dubious mergers just to stay alive.”
In the second quarter alone, US airlines combined lost $13 billion on a GAAP (Generally Accepted Accounting Principles) basis and blew through $15 billion in cash reserves. Q3 will likely produce similar numbers.
Airlines have already shed tens of thousands of jobs by coaxing employees into early retirement or enticing them to voluntary quit. According to Forbes, the industry could eventually loose more than 100,000 jobs.
A transportation economist told Forbes it could take five or six years before we see a return to the passenger traffic and revenue the industry saw in 2019. The Forbes article speculated that even if Americans start traveling again, it will be difficult for the airline industry to respond.
Now, without all those workers, and more importantly without millions of formerly regular travelers – especially high fare-paying business travelers who remain too afraid of Covid-19 to fly – the airlines will not be able to quickly spool up their operations should demand come roaring back at some point.”
Disney blamed prolonged closures at its California park and limited attendance at open parks for the layoffs. Disney head of parks Josh D’Amaro called it a “difficult decision” in a memo obtained by CNBC.
For the last several months, our management team has worked tirelessly to avoid having to separate anyone from the company. We’ve cut expenses, suspended capital projects, furloughed our cast members while still paying benefits, and modified our operations to run as efficiently as possible, however, we simply cannot responsibly stay fully staffed while operating at such limited capacity.”
The company lost about $1 billion in Q2 and losses cascaded in Q3 coming in at $3.5 billion.
Disney’s financial woes have been “exacerbated in California by the State’s unwillingness to lift restrictions that would allow Disneyland to reopen,” D’Amaro said.
The recent waves of layoffs appear to be concentrated in industries hardest hit by coronavirus lockdowns, along with the energy sector that has seen demand plummet due to the contraction of the economy. But at some point, these layoffs will likely create a ripple effect into other areas of the economy.