By KATE LINEBAUGH
Honeywell International CEO David Cote says job growth won't improve much until US economic growth tops 3%, in a bleak outlook for employment as the economy continues to bump along.
The conglomerate, which makes avionics, automotive turbochargers and thermostats, among other products, has only been hiring two to three employees for every four or five who leave. Mr. Cote plans to slow his hiring further amid persistent uncertainty over the US economy.
"We've become more concerned recently," Mr. Cote said in an interview. "If we want employment to grow, we have to have GDP growing more like 3%, not 2% or less."
Honeywell's outlook for the US economy this year is more pessimistic than that of some other forecasters. The company expects the economy to grow just 1.9%, down from the 2.2% for 2012 reported by the Commerce Department. Economists are forecasting 2.4% growth this year, according to a recent Wall Street Journal survey, amid signs of improvement in the housing market.
The unemployment rate ticked slightly higher in January to 7.9% from 7.8% in December, according to the Labor Department, but it was lower than the 8.3% rate in January 2012. The economy added 1.9 million private-sector jobs last year.
"We are generating jobs. We just need to generate more jobs," said Joseph LaVorgna, chief US economist at Deutsche Bank, which projects the US economy will grow 2.3% this year. "The trend is going in the right direction. It is just frustratingly slow."
Like other major US companies, Honeywell has been increasing profits faster than sales. In the fourth quarter of 2012, sales for the biggest US companies grew 3.7% from a year earlier, while profits rose 6.1% to their highest level ever, according to data from Thomson Reuters.
To pull that off, companies did things like cutting costs, reducing workers or charging higher prices. Companies are expected to keep running lean until there are signs that a more robust recovery is under way that could further boost sales.
Honeywell has improved its profit margin each year since 2009 and expects to raise it another notch this year. To do that, the company plans to derive more sales from international markets where growth rates are higher, such as the Middle East and China, offer more new products across its portfolio and cut expenses.
Since 2009, Honeywell, which gets 59% of its sales from business in the US, has added 10,000 jobs globally, boosting its employee count to 132,000, while eliminating 2,000 positions in the US. Last year, Honeywell trimmed its US workforce by 1,000 jobs to 52,000 employees.
"We have 1,000 less people in finance than we did when I arrived in June of 2003," Honeywell chief financial officer David Anderson said. The company has also reduced the ranks of its top executives slightly, to 580 from 600.
Honeywell has curtailed spending plans, though it will seek to increase capital spending this year by a third to $1.2 billion. The funds will be used mainly to build two new facilities in the US.
Meanwhile, the effect of the cuts from Washington as part of the so-called sequester will be minimal for Honeywell, which relied on sales to the US government for about 11% of its revenue last year.
"We anticipated and planned for some level and some period of sequestration," Mr. Anderson said. The company expects a slight decline in its defense business in 2013.
Dow Jones Newswires