Why Companies Will Cut Jobs at Accelerated Rate

America’s high unemployment rate could be the biggest hurdle faced by the U.S. economy today. Millions of Americans are still unemployed and are unable to find jobs thanks to the credit crisis of 2008.

The “official unemployment rate” as reported by the Bureau of Labor Statistics (BLS) stood at 7.8% in December 2012. Before the crisis began in the U.S. economy, the same rate was as low as 4.4% in May of 2007. The current unemployment rate is 77% higher now than it was four and a half years ago.

Unfortunately, looking ahead, the high unemployment rate in the U.S. economy doesn’t seem like it’s going to let up.

The problem at hand is that economic conditions in the U.S. economy are poor and companies are floating in rough seas. Corporate earnings growth is under pressure. And, as a result of poor earnings growth, a trend is emerging that will force the unemployment rate to increase.

For example, Morgan Stanley (NYSE/MS) recently announced it is planning to cut staff by six percent. The reason: poor market conditions. The company will lay off employees at all levels, but jobs at the senior level will undergo more scrutiny. (Source: CNN Money, January 9, 2013.)

Similarly, it wasn’t too long ago that Citigroup, Inc. (NYSE/C) announced it was cutting 11,000 jobs from its current workforce. These jobs account for about four percent of its workforce. The bank didn’t identify how many jobs will be cut in the U.S. economy, but it plans to close down at least 44 of its bank branches. (Source: USA Today, December 5, 2012.)

Other major companies, such as The Walt Disney Company (NYSE/DIS), are also planning job cuts. Walt Disney reports that it performed a cost-cutting review and it found that potential cost cuts might include layoffs in the studios and other units. (Source: CNBC, Monday January 7, 2013.)

Looking at the unemployment in the U.S. economy from a broader perspective, the census figure shows that only 3.9% of the population moved to a different county in pursuit of a job in 2011—a historically low number. (Source: Wall Street Journal, January 9, 2013.) Why such a low figure? Jobs are scarce.

I’m in the camp that believes the unemployment rate will not improve anytime soon. In fact, it could deteriorate further. When companies got into trouble during the financial crisis, they made extensive cost cuts. Now, when their earnings are under pressure again, they don’t have many options other than cutting staff, which puts more pressure on the unemployment rate in the U.S. economy.