A sure sign of the improving economy is the increase in hiring by companies.
So why are some businesses laying off hundreds of workers?
You can blame that on a better economy, too.
Some businesses, such as construction, mirror economic cycles. When the economy is up, such cyclical industries are typically up.
Other businesses, such as foreclosure services, move in the opposite direction. When the economy is up, their business is down.
That’s partly why layoffs rose and hiring was flat during the first six months of this year, even as job openings grew, according to government data. Another factor: Some businesses have struggled because of structural changes, such as new regulations or industry consolidation.
“Even during an economic boom, there are companies that go belly-up,” said Rob Robinson, senior regional vice president of Robert Half Technology in Texas. “Now more than ever, people are more aware of layoffs or companies trimming head count for one reason or another.”
Just ask Rakesh Patel. He has ridden the wave of a changing economy since losing his computer sales job in 2009.
“I decided to change fields from computer to mortgage,” said the Plano, Texas, resident, who is married with two children. “When the mortgage bubble burst, everybody was in trouble, and (banks) were trying to refinance a lot of borrowers. There were a lot of job openings and hiring.”
Patel has navigated five banking and mortgage jobs in four years. At first, he landed temporary and contract work handling loan modifications and short sales as borrowers strained to make mortgage payments. In February, Wells Fargo hired him as a mortgage underwriter as people began buying homes again.
Some economists worry that employment is not keeping up with other economic gains, such as increased exports and home sales.
The U.S. economy is growing at about a 2 percent annual rate, but productivity is growing at a similar pace, said Robert A. Dye, chief economist for Dallas-based Comerica Bank. That negates any need to hire people, he said.
“There’s always going to be some churn of job creation vs. job reduction,” Dye said. “Businesses right now are facing many unique challenges, despite the fact the economy is growing but growing only moderately.”
Cycle of business
Perhaps the best snapshot of cyclical ups and downs can be seen in the banking industry. Hiring and firing can happen around the same time in the same company but in different departments.
“You see this time and again — it’s tied to the business cycle,” said John Fleming, general counsel for the Texas Mortgage Bankers Association. “Segments of the industry change dramatically.”
Banks laid off workers in the financial crisis of 2008 and during the recession, but they also hired people to work with troubled loans and foreclosures. Now banks are laying off many of those workers as the U.S. economy and the housing market have improved.
Banks have seen a plunge in the number of mortgage payments that are at least 90 days late. Bank of America, for example, has seen those late payments drop to about 500,000 today from 1.6 million in 2010.
“If we have one-third of the overdue loans … we don’t need as much staff,” said Richard Holt, Dallas market president for Bank of America. “We had a unique situation to work through, and we’re getting on the other side of it.”
Economic and housing gains have also increased the need for bank workers in mortgage origination, small business lending and investments. Also, new bank regulations have led to hiring risk managers and compliance analysts.
“It was good timing for me,” said Wells Fargo employee Patel. He said he earns 50 percent more than he did after nine years in computer sales.
Patel was one of 375 employees hired earlier this year by Wells Fargo for mortgage underwriting. Now the bank is hiring tellers, financial advisers, lenders and managers.
Overall, Chase has avoided 1,000 layoffs in the past couple of years by reassigning people to other banking jobs, spokesman Greg Hassell said.
What’s going on in banking is “not surprising, though it’s unfortunate that anyone loses their job,” said Fleming, the Texas mortgage bankers lawyer. “But if foreclosures and delinquencies are declining … that’s good news for the economy as a whole.”
Banking is not the only industry where this employment churn can be seen.
In June, the powerhouse law firm of Weil, Gotshal & Manges, which has represented Blockbuster and Lehman Brothers in bankruptcy, laid off about 60 lawyers and 110 support workers to weather a changing legal climate.
In an email to employees, Weil executive partner Barry Wolf in New York said the reason was because the “market for transaction activity remains at the lower levels” and the market for “premium legal services is continuing to shrink” after the 2008 financial crisis.
Craig Enoch, an Austin, Texas, lawyer and former Texas Supreme Court justice, has witnessed a shift away from the “traditional law firm role.”
He has seen less litigation because of state tort reform but more need for lawyers in arbitration cases, as well as more lawyers becoming corporate CEOs.
The bigger question, he said, is: “What do we need to do not just to weather this but put us in a market niche to be successful in the future?”