You may be surprised to learn which industry has announced the most layoffs so far this year: finance.
Through November, companies in the financial sector have announced more than 56,000 layoffs, according to outplacement firm Challenger, Gray & Christmas. That number is up 162 percent from 21,430 financial sector cuts at this point a year ago. Headlining those job cuts is Bank of America, which said in September that it planned to cut 30,000 jobs over the next few years. Another investment bank, MF Global, filed for one of the largest bankruptcies in U.S. history in October and laid off most its staff because of its exposure to the financial crisis in Europe. (The only sector of the economy with plans to cut more jobs is the government.)
"Obviously, the banking sector is not out of the woods," says John Challenger, CEO of Challenger, Gray & Christmas. "It's not returned to business as usual. The banking system and the companies in it are still very fragile." Challenger says U.S. banks face a laundry list of headwinds, including the sovereign debt crisis in Europe as well as record-low interest rates and increased scrutiny and regulation in the United States. In addition, many banks are still dealing with millions of foreclosures on their books.
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While every sector of the economy suffered job losses during the depths of the recession, cuts in the financial services industry were relatively mild. The closest official measure that tracks the finance sector is what the Bureau of Labor Statistics calls the "financial activities" industry, which is made up of workers in a number of fields, including insurance and commercial banking. Current employment in the financial activities industry is 7.6 million, down only about 9 percent from its peak of 8.6 million in December 2006.
Meanwhile, other harder-hit industries like manufacturing and construction were decimated during the recession. Each sector has lost about two million jobs since the downturn began in December 2007. That represents a 14 percent loss for the manufacturing industry and a whopping 27 percent drop in construction-related jobs.
Big banks came roaring bank in 2009 and 2010 on the heels of government bailouts, but now they're dealing with a new batch of issues, most notably the worsening debt crisis in Europe. "That uncertainty means there's a little bit less hiring within the investment banking arena," says Neil Owen, global practice director for financial services at recruiting firm Robert Half. "Because there's no immediate solution to this sovereign debt crisis, everyone is slightly uncertain as to how the banking sector is going to go."
And as Bank of America experienced recently when it tried to introduce new fees, it's going to be difficult for banks to pass on costs to consumers that they say stem from increased regulation. "[The financial sector's] fixed costs are set to rise fairly markedly going forward because of the requirements for higher reserves of capital, of keeping more liquidity on the books," says Patrick O'Keefe, director of economic research at accounting firm J.H. Cohn. "Its ability to offset those costs in terms of increased fees is somewhat constrained as we saw with the debit card announcement. ... In the face of public hostility, they had to back off."
Compensation for employees of big investment banks is also expected to drop. This year, pay at U.S. banks is expected to decline by 27 percent to its lowest level since the 2008 financial crisis, according to a new report released by consulting firm Options Group.
In October, the New York State Comptroller's Office issued its own warning that job losses had picked up and profits were expected to decline among Wall Street banks. "The securities industry had a strong start to 2011, but its prospects have cooled considerably for the second half of this year," says Thomas DiNapoli, New York State comptroller, in a press release. "It now seems likely that profits will fall sharply, job losses will continue, and bonuses will be smaller than last year."