Weakening demand is forcing new and accelerated cost reductionsat companies from Bank of America Corp. and Hewlett-Packard Co. toStaples Inc. and Eastman Kodak Co., dimming the outlook for analready struggling U.S. labor market.

Even as consumer confidence and housing show signs ofrecovering, sales for businesses in the Standard & Poor's 500Index fell 0.9 percent from a year earlier in July throughSeptember, the second consecutive quarterly drop and biggestdecline since 2009, according to analyst forecasts compiled byBloomberg. A 1.2 percent gain projected for October-December stillis smaller than the 5.4 percent rise in this year's first threemonths.

A global slowdown triggered by Europe's debt crisis isexacerbated by the potential impact of the impending U.S. fiscalcliff of changes in taxes and government spending. All this ispushing finance chiefs back to the drawing board, with somelimiting hiring and investment and others slashing more jobs thanoriginally announced. Such belt-tightening will dominate employmentprospects for the rest of the year.

“These cost controls are one of the key reasons job growthremains relatively weak,” said Charles Lieberman, chief investmentofficer at Advisors Capital Management LLC in Hasbrouck Heights,New Jersey, and former head of monetary analysis at the FederalReserve Bank of New York. Companies will avoid hiring until ordershave strengthened and “they cannot meet demand with their existingworkforce.”

Partly because of the retrenching, companies in the S&P 500,excluding financial institutions and utilities, held near-recordcash totaling $1.01 trillion in the first three months of 2012,S&P data show.

And even with the fragile labor market, the world's largesteconomy is expanding. Gross domestic product has grown in eachquarter since June 2009, when the worst recession since the GreatDepression ended. Growth is weakening, however, with thesecond-quarter annual pace of 1.3 percent missing a prior estimateof 1.7 percent and below the first quarter's 2 percent.

Payrolls, after slowing in five of the first eight months thisyear, rose 115,000 in September following a less-than-forecast96,000 gain in August, according to the median estimate ofeconomists surveyed by Bloomberg ahead of a Labor Department reportdue Oct. 5.

Private employers added 130,000 workers, they predicted, and thejobless rate rose to 8.2 percent from 8.1 percent in August. Thatwould mark the 44th consecutive month exceeding 8 percent, thelongest streak in records since 1948.

'Hard Slog'

“It's just going to be a long, hard slog,” said Joshua Shapiro,the top-ranked forecaster of the U.S. economy for three consecutivemonths through July, according to data compiled by Bloomberg andbased on two years of surveys. “The economy is weak and is going tostay weak,” added Shapiro, chief U.S. economist at Maria FioriniRamirez Inc. in New York. “The labor market will continue tostruggle.”

Bank of America, the second-biggest U.S. lender, is speeding upa 2011 plan to trim $8 billion in expenses and more than 30,000positions. Hewlett-Packard, the world's largest personal-computermaker, will slash 29,000 jobs instead of the 27,000 it announced inMay. Staples is accelerating its shutdown of 15 American stores asconsumers shift to using fewer traditional office products such asfolders.

The share of U.S. chief executive officers planning to addemployees or expand investment during the next six months declinedin the third quarter compared with April through June, while abigger share said they'd cut jobs and spending, according to theBusiness Roundtable survey conducted Aug. 30 to Sept. 14. Thegroup's economic-outlook index slumped to 66, the lowest since2009, and the portion of CEOs who anticipate sales will fall morethan doubled to 15 percent from the prior period.

“The headwinds we are flying into will likely dominate in thenext few months,” said Harry Holzer, a public-policy professor atGeorgetown University in Washington and former chief economist atthe Labor Department. In addition to corporate cutbacks, “thepublic sectors at the state and local levels continue to shed jobs.A real turnaround from recent months — that is, something well over150,000 for the rest of the year — is unlikely,” he said, referringto monthly payrolls.

Slowing Investment

This poses a hurdle for consumer spending — which accounts forabout 70 percent of GDP — at a time when other pillars of growthare starting to slacken. Exports decreased 1 percent in July afterrising in May and June. Orders for durable goods other thantransportation equipment dropped in August for a third consecutivemonth, signaling slowing business investment.

Fed data show factory activity in the Philadelphia and New Yorkregions shrank in September, even though manufacturing nationwideunexpectedly expanded, with the Institute for Supply Management'sfactory index rising to 51.5 from 49.6 in August. Measures above 50represent expansion.

While “this report removes some of the concern” thatmanufacturing is contracting, “overall, we're looking at economicgrowth that's moderate but not enough to bring down theunemployment rate significantly,” said Gus Faucher, a senioreconomist at PNC Financial Services Group Inc. in Pittsburgh.

These risks to the expansion help explain why Fed policy makersannounced on Sept. 13 their third round of large-scale assetpurchases since 2008. Chairman Ben S. Bernanke, for the first time,pledged the central bank will buy bonds until the economy getscloser to his goals, signaling the battle against unemploymenteclipses concerns about inflation for now.

“This is a Main Street policy, because what we're about here istrying to get jobs going,” Bernanke said at a news conference afterthe Fed meeting in Washington. “We're trying to meet our maximumemployment mandate.”

Investors encouraged by the Fed's move helped drive the S&P500 to close at the highest level since 2007 the day of theannouncement. The gauge has retreated 1.3 percent since then to1,440.67 at 4 p.m. in New York on Sept. 28. From here on, “it'llget harder to find good returns based on fundamental performance,”said Jack Ablin, who helps oversee about $65 billion of assets aschief investment officer at Harris Private Bank in Chicago.“Revenue growth is slowing, and unfortunately that creates a verydifficult environment for profits to expand.”

'Phenomenal Run'

Retail and consumer-related equities will come under pressureafter “a phenomenal run” helped by Fed actions that boosted assetvalues, Ablin said. While the S&P 500 Retailing Index is up 25percent this year, it has fallen 1.5 percent since Sept. 13, andthe Consumer Discretionary Select Sector SPDR Fund, up 20 percentsince Dec. 31, is also off 1.5 percent.

Payroll reports on Oct. 5 and Nov. 2, the last two before theNov. 6 elections, will be important for voters assessing theeconomic performance of President Barack Obama, who was leadingRepublican candidate Mitt Romney 50 percent to 44 percent in thedaily Gallup tracking poll of registered voters for the periodSept. 21-27. The U.S. has so far recovered only 4.1 million of the8.8 million jobs lost as a result of the 18-month recession.

It will take until the end of 2014 for the unemployment rate tofall to 7 percent, Charles Evans, president of the Federal ReserveBank of Chicago, said Sept. 26 in Hammond, Indiana. The economywould need 200,000 to 250,000 job gains each month for “several,several months” before the Fed can revisit its accommodativepolicy, he added.

Such a pickup may be a tall order as companies contain costs.Financial firms' U.S. employment postings fell 17 percent to 1,373last month from September 2011, data compiled by Bloomberg show.They're also not done paring staff, predicted Meredith Whitney,banking analyst and founder of Meredith Whitney Advisory Group LLCin New York.

“There's going to be another round of 50,000 to 100,000 layoffs”in the securities industry, Whitney said Sept. 19 on BloombergTelevision's “Surveillance” with Tom Keene and Sara Eisen. “WallStreet is just going to have an extremely challenged revenueenvironment” for the “foreseeable future.”

FedEx Corp., an economic bellwether because it ships goods fromfinancial documents to electronics, pared its annual profitforecast last month on slowing demand and a shift to cheaperdelivery services. The Memphis, Tennessee-based company, which inAugust said it would offer workers voluntary buyouts as part of“significant” cost-reductions, will unveil details on more suchmoves next week.

Expense Control

Some companies' own woes are prompting renewed expense control.Rochester, New York-based Kodak said on Sept. 28 it will eliminateat least 200 more jobs in 2012, on top of the 1,000 cuts itannounced on Sept. 10, as the bankrupt photography pioneer shrinksinto a commercial-printing-focused business. That follows a globalreduction of 2,700 this year.

“Companies are trying to protect profit margins as best theycan, so they'll be very guarded” in hiring and capitalexpenditures, said Michael Mullaney, who helps manage $9.5 billionas chief investment officer of Fiduciary Trust Co. in Boston.That's why he has picked Colgate-Palmolive Co., the world's largesttoothpaste maker, and other stocks in “classic defensive sectors”such as health care and consumer staples.

Small companies are responsible for most of the hiring even asbig businesses shed jobs, said Lieberman of Advisors Capital,adding that his firm took on a few people this year without issuinga press release. “The big corporate layoffs always make the news,”he said.

Toya Coverson, 35, of Atlanta, lost her $11.50-an-hour positiontwo months ago as a security guard and now is more concerned afterhearing of business cutbacks, she said.

“It means there are more people looking for work and not thatmany jobs,” said Coverson, who hasn't had an interview though she'sapplied for about 20 openings. “There is going to be fiercecompetition.”

Bloomberg News

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