Payroll Dive Stunned Economists, Not Employers

Figures showing U.S. jobs were slashed in August at their fastest rate since March was far from a surprise to major U.S. companies or those that have been following their recent statements.

Economists expressed surprise at Friday's government report that the number of workers on U.S. payrolls outside the farm sector slid 93,000 in August, the seventh consecutive month of declines.

The report was far worse than the increase of 12,000 expected by Wall Street economists looking for improvement in line with the recent string of better-than-expected data on retail sales, durable goods, consumer sentiment and housing.

But corporations in industries ranging from technology to consumer products have been saying all along they are committed to keeping their payrolls slim.

Cisco Systems Inc. (CSCO), the world's largest maker of equipment that directs Internet traffic, and auto parts maker Lear Corp. (LEA), for instance, have no big hiring plans as they focus on boosting worker productivity.

"In order to maintain our net income as a percentage of revenue goals, Cisco plans to hold head count relatively flat and increase our employee productivity through process improvement and the use of the network," said Kate Dcamp, Cisco's senior vice president of human resources.

In its most recent three quarters, San Jose, Calif.-based Cisco posted its best-ever net profits, all while maintaining a relatively stable work force.

Southfield, Michigan-based Lear, benefiting from strong demand for automotive interiors, also said productivity gains driven by technology and engineering advances are one reason its U.S. work force has stayed flat for the past year.

Fluctuating automotive build rates pose a staffing challenge for Lear, which also faces pressure from automakers to cut costs.

"If we can increase production without adding jobs ... it's much more logical," said Lear spokeswoman Andrea Puchalsky. "People do more overtime rather than adding jobs."

Experts said companies like Cisco and Lear have learned to stay lean, making the job growth process take longer.

"They will try to support the work short-term with improvements in technology and temporary or outsourced labor until they really are sure that things have turned around," said Rick Cobb, executive vice president of global outplacement firm Challenger, Gray & Christmas.

Recent statements from energy producer Marathon Oil Corp. (MRO), food maker H.J. Heinz Co. (HNZ) and chip equipment maker Novellus Systems Inc. (NVLS) also underline corporate America's focus on trimming costs even as business improves.

Marathon said Thursday it would cut 265 jobs in a bid to generate $65 million in annual savings. The restructuring comes just weeks after the Houston company posted a 48 percent rise in second-quarter profit thanks to rising oil prices.

Pittsburgh-based Heinz said this week it planned further staff cuts, even as quarterly earnings more than doubled on strong sales of its ketchup and other products.

In a mid-quarter update last week, Novellus Chief Executive Richard Hill said the company may close facilities to improve profit margins, and declined to rule out job cuts.

At the same time, however, Hill said chip factories have recently become busier and business continues to strengthen.

Another company that has continued to cut jobs even as profits have improved includes Merrill Lynch & Co. (MER), the Wall Street powerhouse has eliminated about 25,000 jobs over the past three years in response to stock market weakness and a slowdown in key businesses.

Merrill cut another 1,300 jobs in the most recent quarter and reported its second-best quarterly results ever in July.

Merrill Lynch spokeswoman Jessica Oppenheim said the focus on cost-cuts is appropriate as the business climate remains challenging. But in an encouraging sign, Merrill has taken on small numbers of new employees in certain areas of its investment banking division.

Overall, companies are almost certain to make sure any foreseeable hiring is small in scale, experts said.

"There is an optimism around companies adding 10 and 20 positions at a time," said Lori Hock, senior vice president of staffing firm Adecco SA's northeast division. "Growth is going to be incremental."