The Grim Reaper Slashes Deeper

The estimated 100,000 financial markets jobs that bit the dust by 2008's halfway point were just a down payment. The intense bloodletting phase is only now getting under way.

Beyond being an obvious takeaway from Morgan Stanley's announcement of mass layoffs Wednesday, that is also a common theme emerging from the latest official U.S. data, and from forecasts issued by a variety of authoritative and not-so-authoritative sources.

The Labor Department's monthly employment report for October was an eye-opener. For the third time in four months, securities industry payrolls shrank nationwide as dramatically as overall nonfarm payrolls did. Industry figures for August and September were revised sharply lower, as also occurred with across-the-board job totals.

Within the Bureau of Labor Statistics category called "Securities, Commodity Contracts, and Other Financial Investments and Related Activities," seasonally adjusted payroll employment declined by 5,600 in October, and the previous two months' headcount was revised lower by a total of 4,100. Across the U.S., a net 20,000 securities industry jobs were lost from July through October - including 14,700 in the last two months alone.

Four-Month Decline Rivals Post-9/11 Period

Although a mere 2.4 percent off the industry's peak employment level of April 2008, that marks the third-worst drop for any four-month period in the past decade. (The two larger declines, of nearly 22,000 each, came soon after the Sept. 11, 2001 terror attacks.)

In New York City, the epicenter of the current financial-industry downturn, securities payrolls shed 4,400 jobs in September after declining by 1,900 on August. October employment data for New York is not yet available, because the Labor Department releases state and local breakdowns a month later than the nationwide totals.

The New York numbers correspond with anecdotal evidence better than the national ones. New York City securities employment peaked in August 2007 and has since declined by 17,100 jobs or nearly 9 percent. (For perspective, during the last previous downcycle that ended in 2003, New York lost 20.6 percent of its peak securities slots, or more than 41,000 jobs. So if the current cycle matches the previous one, the damage is a little less than half over. But industry leaders increasingly warn that the current downturn could run longer and deeper than the previous one.)

When comparing these figures with layoff totals reported in the media or announced by particular companies, bear in mind that:

- The Labor Department reports each month's net change in payroll employment - the difference between newly filled jobs (including those newly created) and old jobs that got eliminated or became vacant. Since even employers making layoffs may continue to fill vacancies and may even create a few new jobs, net payroll declines tend to be smaller than gross layoff numbers.

- The Labor Department figures are limited to positions located in the U.S. or a particular place within the U.S. In contrast, workforce reductions announced by financial institutions and compiled by organizations such as Challenger, Gray & Christmas, may be global in scope.

What Now?

That's the picture through October. What about the next 12 to 24 months? Estimates published since September foresee tens of thousands more U.S. securities jobs vanishing over periods ranging from a few months to a few years.

A Federal Reserve Bank of New York study last month drew parallels with the severe industry downturns that began in 1987 and 2000 and concluded that, "The sharp losses that accompanied the finance sector weakness in the late 1980s might indicate that the city's finance sector stands on the verge of a significant multiyear downturn in employment and in real earnings." Based on a broader definition of financial services workers than the one above, the New York Fed estimated that New York City could lose another 55,000 to 78,000 financial jobs within a few years.

A Financial Times story this week quoted an unnamed "senior executive" whose company (also unnamed) estimates that U.S.-based financial institutions could slash as many as 70,000 slots in "the next round" of cutbacks - many to be finalized this month in connection with 2009 budgets.

High-profile industry analyst Meredith Whitney of Oppenheimer told the FT that many "capital markets intensive players" will have to make 25 - 30 percent workforce cuts. "But if you think about it, from the peak, revenues are down more than that," Whitney observed.

New York City Comptroller William Thompson has estimated that 35,000 financial market jobs will disappear in the next two years.