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Investors grin as companies ax jobs

January 9, 2014: 1:59 PM ET
Investors love it when companies announce job cuts. It's sad. And it has to stop.

Investors love it when companies announce layoffs. It's sad. And it has to stop.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Warning. I think I've reached my Peter Finch from "Network" moment. I'm "mad as hell" about how Wall Street keeps celebrating job cuts as if they are a good thing for the markets and economy. I'm not sure I can take it anymore. (If you want a special video treat, be sure to read all the way to the bottom of this column.)

Shares of Macy's (M) rose more than 8% and hit a record high Thursday, even though the company announced it was closing some stores and laying off 2,500 workers.

But the mystifying thing about this news is that Macy's also reported strong sales for the holidays and a rosy outlook for 2014.

So if things are going so well, why is there a need to let that many employees go?

Macy's isn't the only company that's been rewarded for handing out pink slips. Regional bank First Niagara (FNFG) said Wednesday that it was cutting 170 jobs. Shares rose 2%, while the broader market and most bank stocks were flat.

Related: Investors bet big on big bank stocks

To be fair, First Niagara said that the affected employees would be able to apply for other positions at the bank and that there would actually be 250 new openings.

But a layoff is still a layoff. And you can't help but grimace when you see a headline like this for the press release that explained the restructuring

First Niagara Tailoring Retail Banking Experience to Match Evolving Customer Preferences

In other words, the bank didn't want to cut jobs. Consumers made them do it.

Now I realize that businesses always have to make tough decisions about staffing levels. Sometimes demand isn't strong enough to justify a company's headcount.

Related: The economy may not feel as good as it looks

But isn't the economy supposedly improving? Aren't stocks at record highs? What's it going to take for Corporate America to finally realize that the only road to a lasting (and more robust) recovery is to have as many people working (and therefore having the money to spend) as possible?

I may not have won a Nobel prize for economics but I'm pretty confident that this mathematical equation is valid.

Lower unemployment rate = higher gross domestic product growth

Fortunately, the pace of mass layoffs is decreasing. According to the latest report from outplacement firm Challenger, Gray & Christmas, the number of planned job cuts announced in December was the lowest since June 2000. And for the full year, 2013 had the least number of layoffs since 1997.

But as Macy's and First Niagara show, some companies continue to trim jobs.

That's a problem given that there are still millions of unemployed workers in America who have not yet given up the search for a job. And many of them are now faced with the possibility of losing jobless benefits.

Related: 'I just want a job'

If companies begin to hire more again instead of cutting jobs, doesn't it stand to reason that the newly employed will be able to boost GDP by spending and investing?

It's a win-win for Corporate America and Main Street when salesĀ and profits are both going up. That's how you create a self-sustaining recovery. Enough with trying to juice earnings and market returns through cost cutting.

I've written about this topic several times in the Buzz, most recently in October. (See "You're fired. Stock rises. Wall Street loves layoffs")

At that time, shares of tech firms AOL (AOL), Hewlett-Packard (HPQ) and Cisco (CSCO) were rallying on job cut news. So were shares of big bank Wells Fargo (WFC), drug giant Merck (MRK) and German industrial conglomerate Siemens (SI).

I plan to keep writing about this until we see even stronger growth in hiring and fewer big layoff announcements ... or until Wall Street stops perversely cheering the short-term jump in profit margins that tend to take place when companies put people out of work. Take the long view, traders!

Reader Comment of the Week! Now that the bile is out of my system, let's celebrate the rapidly approaching end of the week with a classic movie quote.

I joked over on that Twitter thang Wednesday about how shares of J.C. Penney (JCP) were tanking even though the retailer said it was "pleased" with its holiday sales. That made me think of a line from "The Princess Bride."

I was pleased to see that my buddy John Comas took my quote to the next obvious level. And that's why he wins the Reader Comment of the Week.

Ha! Never go in against a Sicilian when death is on the line! And unlike Wallace Shawn, I am actually of Sicilian descent.

And for those of you who made it this far, here is the famous scene from Network I referenced in the lead.

And a snippet of that "inconceivable" scene involving Rex from "Toy Story" fame.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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