Sunday, September 20, 2015

As Global Cross-Currents Increase... Part 2

  • Last week, after the U.S. Federal Reserve announced it would not increase interest rates in September, Chair Janet Yellen said ”the [U.S.] economy has been performing well and we expect it to continue to do so … The outlook abroad appears to have become more uncertain of late and heightened concerns about growth in China and other emerging market economies have led to volatility in financial markets … There are "very high levels of part-time, involuntary employment and labor force participation suggests that at least to some extent the standard on employment rate understates the degree of slack in the labor market.” 
  • Separately, as Hewlett-Packard announced plans to cut another 25,000 to 30,000 jobs, CEO Meg Whitman said this action will "enable a more competitive, sustainable cost structure." In addition, about 60% of the firm’s U.S. and Western Europe services staff will be replaced by workers in Costa RicaManila, the Philippines; Sofia, Bulgaria; and Bangalore and Chennai in India by 2018.
  • As Qualcomm cut 1,314 jobs in San Diego and hundreds elsewhere because of slowing smartphone growthPresident Derek Aberle said “A workforce reduction is never easy …The company is providing [support] for those employees affected during this difficult time.” Note: Qualcomm plans to cut its 31,300 global workforce by 15 % over the next year.  
  • As Union Pacific Railroad began to cut several hundred jobs in Omaha and other locations, CEO Lance Fritz said “this is an extremely difficult decision to make because of the impact it will have on all our employees … However, for our company’s long-term success we must take these painful actions to balance workforce levels with today’s business demands.”
  • Regarding China – Yellen’s comments about China surprised some market observers (because the Fed has historically not publicly commented about other governments); but her concerns validate the view that global markets are increasingly interconnected.
  • Regarding a slack labor market – Confronted with weak economic growth, business managers continue to increase profitability by replacing “high cost” staff with outsourced and/or automated alternatives – a process that can result in stagnant wage growth and continued income inequality.
  • Regarding maintaining low interest rates – The global economy remains fragile, expect more market volatility.

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