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Investors grin as companies ax jobs

  • By Paul R. La Monica,
  • CNNMoney.com
  • – 01/09/2014
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Warning. I think I've reached my Peter Finch from "Network" moment. I'm "mad as hell" about how Wall Street keeps celebrating job cuts as if they are a good thing for the markets and economy. I'm not sure I can take it anymore.

Shares of Macy's (M) rose more than 8% and hit a record high Thursday, even though the company announced it was closing some stores and laying off 2,500 workers.

But the mystifying thing about this news is that Macy's also reported strong sales for the holidays and a rosy outlook for 2014.

So if things are going so well, why is there a need to let that many employees go?

Macy's isn't the only company that's been rewarded for handing out pink slips. Regional bank First Niagara (FNFG) said Wednesday that it was cutting 170 jobs. Shares rose 2%, while the broader market and most bank stocks were flat.

To be fair, First Niagara said that the affected employees would be able to apply for other positions at the bank and that there would actually be 250 new openings.

But a layoff is still a layoff. And you can't help but grimace when you see a headline like this for the press release that explained the restructuring

First Niagara Tailoring Retail Banking Experience to Match Evolving Customer Preferences

In other words, the bank didn't want to cut jobs. Consumers made them do it.

Now I realize that businesses always have to make tough decisions about staffing levels. Sometimes demand isn't strong enough to justify a company's headcount.

But isn't the economy supposedly improving? Aren't stocks at record highs? What's it going to take for Corporate America to finally realize that the only road to a lasting (and more robust) recovery is to have as many people working (and therefore having the money to spend) as possible?

I may not have won a Nobel prize for economics but I'm pretty confident that this mathematical equation is valid.

Lower unemployment rate = higher gross domestic product growth

Fortunately, the pace of mass layoffs is decreasing. According to the latest report from outplacement firm Challenger, Gray & Christmas, the number of planned job cuts announced in December was the lowest since June 2000. And for the full year, 2013 had the least number of layoffs since 1997.

But as Macy's and First Niagara show, some companies continue to trim jobs.

That's a problem given that there are still millions of unemployed workers in America who have not yet given up the search for a job. And many of them are now faced with the possibility of losing jobless benefits.

If companies begin to hire more again instead of cutting jobs, doesn't it stand to reason that the newly employed will be able to boost GDP by spending and investing?

It's a win-win for Corporate America and Main Street when sales and profits are both going up. That's how you create a self-sustaining recovery. Enough with trying to juice earnings and market returns through cost cutting.

I've written about this topic several times in the Buzz, most recently in October.

At that time, shares of tech firms AOL (AOL), Hewlett-Packard (HPQ) and Cisco (CSCO) were rallying on job cut news. So were shares of big bank Wells Fargo (WFC), drug giant Merck (MRK) and German industrial conglomerate Siemens (SI).

I plan to keep writing about this until we see even stronger growth in hiring and fewer big layoff announcements ... or until Wall Street stops perversely cheering the short-term jump in profit margins that tend to take place when companies put people out of work. Take the long view, traders!

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Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.
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