The last time American Express Co. announced large-scale job cuts was in the depths of the steep 2008-09 recession. With the U.S. supposedly in recovery mode, the charge card giant is cutting again, announcing Thursday it would slash 5,400 jobs this year. Is this a sign that the U.S. economy is actually in reverse mode? No, but it's the kind of announcement we should be hearing more of as corporate America tries to boost profits in a low-growth economy.
One could argue the big reason for Amex's cuts is a move toward expense-cutting elsewhere: Its business travel segment has been losing steam as corporate travel buyers increasingly move to lower-cost online bookings. This part of the business is taking the brunt of the job cuts. But Amex is also cutting in other areas, including any functions that don't directly drive revenue.
Like many other corporate giants, American Express is watching that top line with concern. The company revealed in its pre-earnings announcement Thursday that revenue for the fourth quarter net of interest expenses would be 5 per cent higher than last year, which translates into about a 5-per-cent increase for the year. While that may sound healthy, it would represent a second straight year of decreasing growth, and would mark the company's poorest year-over year performance since 2002, factoring out the 2008-09 years of the recession. The company is now targeting revenue growth of 8 per cent a year in the long run, which would be lower than its performance in seven of the last 10 years.
Amex already announced a year ago the days of operating expenses rising faster than revenue were over (they grew by an average of 7 per cent in 2010 and 2011); now, the company has tightened even further, saying operating expense increases must be limited to 3 per cent annually this year and next. "Our goal is to make the company more nimble and effective, and using our resources to drive growth even in a slow-growth environment," Amex chief executive officer Ken Chenault said in a conference call Thursday.
Put another way, the recovery from the credit crisis is losing steam, and growth is getting harder to come by, even for robust companies like Amex. With a softening top line, companies are increasingly looking to sweat their expenses down to raise their bottom line. If low growth becomes more entrenched in the U.S. economy – as some expect – economic growth will increasingly depend on productivity growth, which means corporations becoming leaner and leaner over time.
Walt Disney Co. is reportedly undertaking an internal cost-cutting review, and you can bet many other companies are doing the same thing. Anyone looking for a career change in the U.S. in the next few years might want to consider "restructuring specialist" as an option.
Sean Silcoff