Headline: Layoffs Cast Doubt on Burst of U.S. Confidence

Source: International Herald Tribune, 29 Mar 2001

URL: http://www.iht.com/cgi-bin/generic.cgi?template=articleprint.tmplh&ArticleId=15097

As the parade of layoff announcements from industrial companies around the world grew on Wednesday, economists and investors questioned the optimism of American consumers that brightened the stock market just 24 hours earlier.

"I think that what is going on here is a real, genuine recession, and the news is coming out in fits and starts," said Carl Weinberg, chief economist of High Frequency Economics in Valhalla, New York. "The industrial sector is just going to get worse for a while. There will be layoffs, and there will be disappointing earnings reports. Look for a continuum of weak corporate reports for another two or three quarters."

Just a day earlier, investors had been heartened by a sharp rise in American consumer sentiment for March. As well, the president of the Federal Reserve Bank of St. Louis, William Poole, said in Prague that the U.S. economy was growing at a 1 percent annual rate this quarter and would accelerate in coming months, avoiding a recession.

That outlook sparked a rise in U.S. and European stock markets Tuesday that was largely reversed Wednesday afternoon in New York, as the Dow Jones industrial average fell 2.05 percent and the Nasdaq composite index dropped 5.97 percent. Asian markets had risen for the day, reflecting the Tuesday advances in New York.

The threat of a U.S. recession has been cited as a drag on other economies. U.S. consumers are seen as "the engine driving the world economy," Mr. Weinberg said, although he called that a simplistic view. In any case, he found the consumer sentiment statistic to be "flaky" and at odds with a deteriorating picture for corporate profits and therefore jobs, as illustrated by the recent string of layoffs.

On Wednesday, ADC Telecommunications said it would trim as many as 4,000 jobs in addition to 3,000 cut since Nov. 1 as customers canceled orders for its equipment. That followed Nortel Networks' announcement late Tuesday that the maker of fiber-optics equipment would add 5,000 job cuts to the 10,000 it announced last month.

In Tokyo, Sanyo Electric said it would eliminate 6,000 jobs in Japan over the coming three years as its sales of components to major makers of portable telephones flagged, and the three big makers of cell phones - Nokia, Ericsson and Motorola - have also announced layoffs in recent weeks.

While the communications industry is suffering from a sharp reduction in investment after overzealous expansion in the past few years, it is not the only sector where jobs are being slashed.

Walt Disney, for example, said it planned to trim about 4,000 positions as its earnings growth slows.

Palm, a maker of handheld electronic organizers, also said late Tuesday that it was dismissing workers, though only 250 of them, as its sales outlook dimmed.

The layoffs extend far into the old economy, with such companies as Procter Gamble and DaimlerChrysler trimming thousands of positions in order to reduce their costs.

Mr. Weinberg said he thought the U.S. economy would recover later this year.

"We do not see this as being a protracted business cycle experience," he said. "It is not a Depression-like scenario. We think this is a correction to a period of what was unsustainably fast economic growth."

Delos Smith, chief economist of the Conference Board, also predicted a rebound this year but said he did not think the U.S. economy was threatened with recession. It was the monthly consumer sentiment survey by the Conference Board that ignited the Tuesday stock rally, and Mr. Smith said the layoff announcements did not necessarily negate the idea that jobs would be plentiful in the near future.

"You have to be very careful how you define announced layoffs," he said. In the past, a company cutting positions might send hourly workers home the day of the announcement, he said, but many of the latest moves will be implemented over months or years and include voluntary exits and attrition well as dismissals.

In addition, he said, companies such as DaimlerChrysler will still pay some workers for the length of their contracts, mitigating the effect on the economy. Many of the 26,000 North American layoffs the automaker announced in January involve unionized workers who will be paid 95 percent of their salaries in 2003.

In the case of Procter Gamble, he said, 60 percent of the layoffs were outside the United States, also limiting the effect on American consumer sentiment.

Mr. Smith said the reason the U.S. economy precipitously slowed late last year was a "classical inventory overhang" in which a glut of manufactured goods had to be eroded before new orders could be placed. The overhang peaked at about $40 billion, he said, which has since been reduced to about $15 billion. Much of the inventory was in technology goods, including communications gear, he said, and because that industry is relatively new it is hard to estimate exactly how long it will take for those stockpiles to be reduced, although four months would be a likely maximum.

The consumer confidence survey found strength in the Midwest and Southeast, traditional manufacturing regions, indicating old-economy results will improve in short order, he said.

-- Andre Weltman (aweltman@state.pa.us), March 29, 2001

Answers

Headline: Despite layoffs, the days of worker empowerment are far from being over

Source: St. Louis Post-Dispatch, 29 Mar 2001

URL: http://www.stltoday.com/stltoday/business/stories.nsf/Business/BBD2C2C 8BDA4DE3286256A1D0031D2BE?OpenDocument&Headline=Despite%20layoffs%2C% 20the%20days%20of%20worker%20empowerment%20are%20far%20from%20being% 20over

NOTE THIS: Challenger Gray & Christmas Inc., an outplacement firm based in Chicago, has been tracking layoff announcements since 1993, and only six times has the monthly job-cut total gone above 100,000. Three of those times have been in the past three months... "Unemployment is still remarkably low, but I do think that it is going up," Challenger said. "Unemployment is more of a lagging indicator."

***************

Procter & Gamble announces 9,600 layoffs. WorldCom cuts 6,000 jobs, the first layoffs in company history. Even the happiest place on Earth, Walt Disney Co., is cutting 4,000 jobs.

These are recent headlines, but they sound like news from the bad old days, before companies discovered that workers were a scarce resource. Was it really so long ago that employers were offering signing bonuses to lure employees, then installing cappuccino machines and relaxing dress codes to build loyalty?

Challenger Gray & Christmas Inc., an outplacement firm based in Chicago, has been tracking layoff announcements since 1993, and only six times has the monthly job-cut total gone above 100,000. Three of those times have been in the past three months.

John Challenger, president of the firm, says that despite companies' protestations about their desire to build employee loyalty, corporate America seems intent on creating a just-in-time employment system, where firms can let people go quickly in bad times and hire them just as quickly during a boom.

The corporate mentality hasn't changed all that much since the mid- 1990s, when "Chainsaw Al" Dunlap cut thousands of jobs at Sunbeam Corp. and was rewarded, for a time, with a rising stock price. Dunlap ultimately cut too deeply, sending the company into a downward spiral that ended in bankruptcy.

"We don't have quite the embodiment of evil that we had then with Chainsaw Al," Challenger said, "but I'm not sure the system hasn't continued to move in his direction."

Flexibility, though, is a great strength of the U.S. economy. And, at least so far, people don't seem to have a problem finding work. The national unemployment rate has risen only slightly, to 4.2 percent in February from last fall's low point of 3.9 percent. In St. Louis, the jobless rate rose to 4.1 percent in February from 3.1 percent a year earlier.

"Unemployment is still remarkably low, but I do think that it is going up," Challenger said. "Unemployment is more of a lagging indicator."

Jane Lommel, a work force consultant with the Hudson Institute in Indianapolis, doesn't think the golden age of worker empowerment is over. The basic trends that caused the worker shortage will continue, she says: Birth rates are low, and workers from the Baby Boom generation need to be replaced as they start to reach retirement age.

"Obviously, we couldn't have prosperity forever," Lommel said, "but the demographics have not changed."

The Hudson Institute thinks unemployment will peak at about 5.5 percent, still relatively low by historical standards.

Employers are aware of the tight job market, she said, and are likely to make layoff decisions based on merit evaluations rather than on seniority.

"Employers learned from the last recession that when they let all their senior people go, that was all their knowledge walking away," she said.

Those who still have a job will continue to benefit from the creative benefits packages that were created because of the worker dearth, Lommel believes. Fat signing bonuses and "some of the outrageous things" (think of the pool tables that were common in dot-com offices) may disappear, she says, but you'll still see flexible scheduling, telecommuting and cafeteria plans that let employees choose their mix of insurance, day-care, savings and other benefits.

Challenger noted that one of the recent ax-swingers, Charles Schwab, is going out of its way to let ex-employees know that they're still valued. Schwab is laying off up to 3,400 people. Besides generous severance pay, stock options and insurance payments, it is dangling a hire-back bonus of $7,500 for anyone who rejoins the company within 18 months.

Companies already use golden parachutes to reward executives who leave and golden handcuffs to reward folks they want to keep. Now, in this just-in-time age, Schwab has just invented the golden bungee cord.

-- Andre Weltman (aweltman@state.pa.us), March 29, 2001.

I calculate 1,396,328 lay-offs posted on the "List of Layoffs Thread" from Dec/27/00 to Mar/27/01, +/- 50,000. Can this be verified? Does not include companies that indicate no numbers just % of staff lay-offs. Does not include companies closed for good, bankrupt or have only listed - unknown employees. Estimated 90 % of lay-offfs are in North America.

-- D.J. Rowe (cedarwood@linetap.com), March 30, 2001.

D.J., that's great work on your part. Wow. Of course, how does that total jibe with the statements in the article above? I don't know. (Let's not even consider the "joke" official layoff numbers from the government).

I keep seeing repeated assurances that among those laid off, some or many will be able to find work again if they want it...but in my opinion probably not at the same pay level. "You want fries with that?" "Paper or plastic?" Plus, the emotional consequences of that many layoffs have got to be accumulating across the country and the world.

-- Andre Weltman (aweltman@state.pa.us), March 30, 2001.

Found this via Cory Hamasaki's list: Forbes.com has a Layoff summary for the big companies, see:

http://www.forbes.com/2001/01/30/layoffs.html

Pretty scary.

[I'll cross-post this within GICC to the current Layoffs thread, too.]

-- Andre Weltman (aweltman@state.pa.us), March 30, 2001.