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Caterpillar to Cut Up to 10,000 Jobs, Citing Falling Demand
Old taxis being scrapped by a Caterpillar excavator in Changsha, Hunan province, in China.Credit Reuters

The shock waves from the volatility rocking China and emerging markets worldwide rolled through the American heartland on Thursday as Caterpillar, based in Peoria, Ill., announced plans to cut as many as 10,000 workers, reflecting slumping demand.

Caterpillar, a leading symbol of American exporting and manufacturing prowess with its iconic yellow bulldozers, excavators and dump trucks, has been hit with a one-two punch that investors worry will hurt other big American companies active in the global market. The crashing prices of commodities like oil and copper, tied to a slowdown in China, have combined to raise doubts about the ability of the American economy to sustain its momentum.

Investors already nervous about prospects for global growth reacted with dismay to the Caterpillar disclosure, sending shares in the company, one of the 30 blue-chip stocks in the Dow Jones industrial average, down 6.3 percent for the day. Earlier Thursday, the Dow was down more than 1 percent but recovered some ground, closing lower by about 78 points, or 0.5 percent. Exchanges in Europe closed down roughly 2 percent.

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Caterpillar to Cut Up to 10,000 Jobs, Citing Falling Demand
Caterpillar’s announcement sent its stock down 6.3 percent  for the day.Credit Justin Sullivan/Getty Images

Although Caterpillar is affected more severely than most companies because mining businesses and other commodity producers are among its main customers, its problems illustrate the economic difficulties facing many multinationals.

“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors — namely in mining and energy,” said Douglas R. Oberhelman, Caterpillar’s chief executive. “While we’ve already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now.”

Caterpillar had slightly more than 110,000 employees worldwide at the end of the second quarter, and it says it expects to cut 4,000 to 5,000 positions by the end of 2016. An additional 5,000 jobs could be eliminated by the end of 2018, Caterpillar said in a statement.

Most of the initial reductions will be among salaried workers and management, the bulk of them in United States, rather than the hourly work force, the company said. Along with layoffs, Caterpillar will look to reduce its manufacturing footprint and is considering closings or consolidations at more than 20 plants worldwide.

In an op-ed article in The Peoria Journal Star, Mr. Oberhelman reiterated the company’s commitment to the town but warned that the layoffs would be sizable.

“Because Peoria is our global headquarters and we have the largest concentration of employees in Illinois, the impact here will be significant,” he wrote. “Peoria has been Caterpillar’s home for 90 years and we know this is especially difficult and hard for our local employees, families and communities.”

The company also reduced its outlook for revenue in 2015 by $1 billion, to $48 billion. That is a decline of more than 25 percent from four years ago, when surging commodity prices and the boom in Asia fueled very strong results.

Caterpillar has been aggressive about cutting jobs and reducing costs since then. Still, the scale of its announcement on Thursday surprised investors.

“Several of the key industries we serve — including mining, oil and gas, construction and rail — have a long history of substantial cyclicality,” Mr. Oberhelman said. “While they are the right businesses to be in for the long term, we have to manage through what can be considerable and sometimes prolonged downturns.”

Exports to China equal only a tiny portion of the United States gross domestic product, just under 1 percent, but the Chinese market and other Asian economies have become a major source of growth not just for heavy equipment manufacturers like Caterpillar and John Deere, but also such big names as Apple, Boeing and United Technologies.

In the first seven months of 2015, American companies exported more than $65 billion worth of products to China, making it the third-largest destination for American-made goods after Canada and Mexico. The United States runs a substantial trade deficit with China — imports here totaled nearly $268 billion over the same period — but exports to China rose by 34 percent between 2010 and 2014.

The uncertain outlook for growth in Asia and in emerging markets like Brazil, Turkey and South Africa is not a worry just for corporate executives or investors on Wall Street. Last week, the Federal Reserve held off on raising short-term interest rates, citing global economic conditions as a principal concern.

Still, over the long run, analysts predict the American economy will benefit substantially from growth abroad.

“In the near term, there are clearly risks in terms of China’s growth rate,” said Nariman Behravesh, chief economist at IHS, a business information firm. “But this is the second-largest economy in the world now, so even if they grow by 6 percent, that’s a much bigger contribution to global growth than when they were smaller and grew by 10 percent a decade ago.”

“They are struggling right now,” he added. “But the future in terms of growth is with China and the emerging world.”

Read more http://rss.nytimes.com/c/34625/f/640350/s/4a23f254/sc/28/l/0L0Snytimes0N0C20A150C0A90C250Cbusiness0Ceconomy0Ccaterpillar0Efeeling0Eglobal0Eslump0Eto0Ecut0Eup0Eto0E10A0A0A0A0Ejobs0Bhtml0Dpartner0Frss0Gemc0Frss/story01.htm


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