Job cuts soared to a near two-year high in January as the energy sector in the U.S., particularly in Texas, trimmed its payrolls due to a sharp drop in oil prices.
U.S.-based employers shed 53,041 jobs last month, according to global outplacement firm Challenger, Gray & Christmas, with 40% of those directly related to oil prices. It was the highest monthly job cut tally since February 2013 and an 18% increase from the same month a year ago.
Of the 21,322 job cuts that were attributed to the sharp decline in oil prices, which has occurred since last summer, Challenger said that almost all of the layoffs occurred in the energy industry. Lower oil prices also led to job cuts in the industrial goods manufacturing sector, which supplies materials to oil drillers. Schlumberger (SLB), Baker Hughes (BHI), Halliburton (HAL) and ConocoPhillips (COP) are among the firms that announced job cuts last month, according to Challenger.
Texas, the largest oil producing state and thus the most exposed to the energy sector, was hurt the most. Job cuts totaled 19,833 in Texas last month, sharply above the 3,605 cuts announced in the same period a year ago.
“We may see oil-related job cuts extend well beyond those industries involved with exploration and extraction,” said John A. Challenger, CEO of the outplacement firm. He warned the retail, construction and entertainment sectors in regions that have benefited from the oil boom could face challenges.
Oil prices have slumped more than 50% since June, according to the Wall Street Journal, as traders are reacting to global oversupply. Part of that is due to an energy boom in the U.S. thanks to a process known as hydraulic fracturing, which is used to extract natural gas and oil in ways that weren’t possible before. WSJ, citing analysts, says it could take months before cuts to spending and drilling result in lower U.S. production, which remains high.
Challenger had previously warned that oil prices could result in higher job cuts. The firm last month said U.S.-based job cuts announced last year were the lowest annual total since 1997. But in that same report, Challenger said that while downsizing would remained subdued in 2015, falling oil prices were a concern.
“Despite the recent surge in job cuts, the net result of falling oil prices could ultimately prove to be positive for the economy, as a whole,” Challenger said. Lower prices at the pump mean more spending for visits to restaurants, travel and entertainment, and could also continue to lift sales for pricier SUVs and trucks.