Dow Jones Business News
No Signs Of Hiring Among Russell's Top 4Q Performers
Monday February 9, 1:11 pm ET
By Cynthia Schreiber, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Despite big gains in the fourth quarter, the top 10 performers on the Russell 2000 Index of small stocks aren't showing signs of hiring more workers.
In fact, the top-percentage gainer on the list - AK Steel Holding Corp. (NYSE:AKS - News) - said it would cut its payrolls by 475, or 20% of its salaried work force, in the fourth quarter, even as its stock surged 155%.
Of course, stock prices aren't coincident indicators of job growth but rather are indicators of future earnings or business activity, which ultimately could correlate with hiring. A number of factors could cause a stock to rise, ranging from interest rates to profit predictions to "the mood of the buying public," noted James Furey, head of small-cap strategy at Lehman Brothers Inc.
Yet the divide between rising stock prices and sluggish job growth points out a paradox. When choosing a stock, investors want a company that is profitable, whether it is adding jobs or not. But when choosing between the stock market and another asset class such as bonds or cash, investors want an economy that is expanding through strong, steady job growth.
"People are looking for confirmation of a growth spiral," said Lee Price, research director of the Economic Policy Institute in Washington. That is, for investors to keep pumping money into the stock market, they need to see evidence that people are getting jobs and are spending their incomes on goods and services to the extent that companies need to hire more workers to keep up with the demand.
But just the opposite seems to be occurring on a stock-specific level, where companies are laying off employees to cut costs and stay competitive.
As part of its effort to return to profitability, for example, AK Steel said its job cuts should result in annual savings of about $35 million, starting this year. In the fourth quarter of last year, the company sharply narrowed its net loss to $163.9 million, or $1.51 a share, from $489.7 million, or $4.54 a share, a year earlier.
"We still face significant cost pressures," said Alan McCoy, a spokesman for AK Steel. "It's not an industry where job growth is realistic."
Indeed, AK Steel isn't alone in an industry challenged by significantly higher energy and raw material costs. Steel producer Allegheny Technologies Inc. (NYSE:ATI - News) cut its salaried work force by about 276 employees, or 10%, in the fourth quarter. During that time, its stock rose 103%, making it the 10th largest percentage gainer on the Russell 2000.
In between are eight companies that operate in a variety of industries, from fragrance maker Inter Parfums Inc. (NasdaqNM:IPAR - News) to peanut distributor John B. Sanfilippo & Son . Their stock prices more than doubled in the fourth quarter. But none of these companies announced changes to their work forces in the fourth quarter. Company representatives either declined or weren't available to comment on their outlook for hiring.
Productivity gains through technology and longer work hours help explain how companies are able to increase their output without expanding their payrolls. But the lack of job growth is particularly disconcerting among smaller companies where the first signs of job growth are expected to show. The thinking is that hiring by smaller companies would precede hiring by larger companies, where signs of temporary or part-time employment would lead the way.
"No one is going to jump in the water," said Rick Cobb, executive vice president of outplacement firm Challenger, Gray & Christmas. "They are going to dip their toe in."
-By Cynthia Schreiber, Dow Jones Newswires; 201-938-2408 cynthia.schreiber@dowjones.com.