Economist Links Cummins Layoffs to Trade Dispute
INDIANAPOLIS - A professor at the Indiana University Kelley School of Business says the announced layoffs at Columbus-based Cummins Inc. (NYSE: CMI) are a signal of the continuing impact of a trade dispute between the U.S. and China.
“We're seeing a significant slowing in the global economy,” said Phil Powell, professor of business economics. “What we need to realize is that Cummins is a global company, and a lot of their sales are in the faster-growing economies in emerging regions of the world, including China.”
Powell says China’s economy is forecast to grow 5-6% in 2020. While that appears strong compared to other countries, including the U.S., Powell says China’s economy had been growing by 10% annually.
And he warns that other Indiana manufacturers that rely on the export market could feel the same pain if the trade conflict doesn’t resolve soon.
On Monday, Cummins announced it was laying off 2,000 salaried workers worldwide in a cost-cutting move.
Efforts to reduce discretionary spending, optimize optimization and encourage voluntary attrition through retirements were apparently not enough to compensate for the downturn.
“Demand has deteriorated even faster than expected, and we need to adjust to reduce costs,” said the company in a statement.
During a conference call last week with analysts, Cummins Chief Operating Officer Tony Satterthwaite said the company would be down double-digits in the fourth quarter and the company expects revenue will also be down in 2020.
“And just as in prior cycles, we have a plan to not only manage through,” said Satterthwaite. "But deliver on increasing profitability."
Cummins did not specify how many, if any, Indiana jobs would be affected by the move. However, the company said the layoffs involve exempt employees, meaning salaried positions and not union jobs.
The cuts are expected to take place during the first quarter of 2020.
“I think that's a strategic signal Cummins wants to be much more efficient,” said Powell. “This is a long-term play to be more efficient. And I think they're trying to get ahead of any larger slowdown so they can be more proactive and reactive. And it puts them in a position to do that.”
Powell says the nation’s economy has been running on what he calls a pretty intensive pace for several years, with one of the longest periods of economic expansion the country has ever witnessed.
“But the economy inhales and exhales. And so, this is a natural part for business cycle. Seeing this type of slowdown is a natural part of the economic cycle, and we're due for one right now,” said Powell.
It’s an unwelcome slowdown for Hoosiers, employed by Cummins, who don’t know what the future holds.
“We understand this is incredibly difficult for those directly impacted and for all employees across the company,” said the Cummins statement.