8 Articles on Job Destruction
8 Articles on Job Destruction
Date: Friday, December 05, 2003 6:05 PM
JOB DESTRUCTION NEWSLETTER
www.ZaZona.com
Article 1:
http://www.businessweek.com/magazine/content/03_49/b3861001_mz001.htm?c=bwinsidernov27&n=link1&t=email
The Rise Of India
Growth is only just starting, but the country's brainpower is already
reshaping Corporate America
The Welch center is at the vanguard of one of the biggest mind-melds in
history. Plenty of Americans know of India's inexpensive software
writers and have figured out that the nice clerk who booked their air
ticket is in Delhi. But these are just superficial signs of India's
capabilities. Quietly but with breathtaking speed, India and its
millions of world-class engineering, business, and medical graduates
are becoming enmeshed in America's New Economy in ways most of us
barely imagine.
Article 2:
http://www.nytimes.com/2003/11/30/opinion/30GOOL.html
The Unemployment Myth
The government's announcement on Tuesday that the economy grew even
faster than expected makes the current "jobless recovery" even more
puzzling. To give some perspective, unemployment normally falls
significantly in such economic boom times. The last time growth was
this good, in 1983, unemployment fell 2.5 percentage points and another
full percentage point the next year. That's what happens in a typical
recovery. So why not this time? Because we have more to recover from
than we've been told. The reality is that we didn't have a mild
recession. Jobs-wise, we had a deep one.
Article 3:
http://www.pjstar.com/news/topnews/b1flludq044.html
Blue-collar blues
Cities reliant on giants like Cat and Maytag must wean themselves off
assembly-line jobs
George Carney has logged double shifts since last summer, loading
refrigerators into trucks during the day, then stocking coolers and
mixing drinks three nights a week at a small-town bar. His workdays
will be sliced in half when Maytag shutters its Galesburg plant by the
end of next year, leaving him with just the tavern he bought to start a
new career after Maytag moves to Mexico for cheaper labor.
Article 4:
http://www.theinquirer.net/?article=12967
Indian government defends outsourcing
Be patriotic. Go on the dole
IN DELHI LAST Saturday, Indian prime minister Atal Bihari Vajpayee told
an EU delegation that outsourcing to India is the consequence of
barriers to free movement of Indian professionals into other countries.
He claimed that the declining birth-rates and ageing population in
Europe and America required an influx of foreign workers to fill the
gaps but while restrictions remain on the movement of professional
people, the only recourse for companies was to send the work to where
the people are located.
Article 5:
http://greenvilleonline.com/news/business/2003/12/02/2003120220214.htm
Hitachi to lay off 220
Greenville-based Hitachi Electronic Devices (USA) Inc. said Tuesday it
is laying off 220 of its employees, citing the weak economy and lack of
customer demand for its big-screen televisions. "Consumer electronics
left the United States long ago, and now production is being
consolidated in China," said Andy Rothman, China strategist for CSLA
Emerging Markets. "There clearly is a shift to China as a major
manufacturing platform for world consumption."
Article 6:
http://www.nytimes.com/aponline/business/AP-Aviva-Jobs.html?ex=1071388078&ei=1&en=5d22d3ed76b10be2
Aviva Insurance Plans to Hire in India
Aviva PLC, one of the the world's biggest insurance groups, plans to
hire 2,500 people in India in 2004 while cutting up to 500 jobs in
Britain and Canada.
Article 7:
http://www.technewsworld.com/perl/story/32284.html
Known Around the World: Private Records May Be at Risk
"They started off sending American jobs overseas," said U.S. Rep.
Edward Markey (D-Malden), co-chair of the congressional Privacy Task
Force. "Now Americans get to lose their jobs and their privacy at the
same time."
Article 8:
http://biz.yahoo.com/fo/031204/42c5aaadaf663fe6dca5471ed5ba2266_1.html
Forbes Magazine
Profits and Layoffs
Productivity gains in this recovery are mostly the result of trimming
workers from the payroll. And so earnings have benefited. Alas, this
elixir can't keep working forever. Look out.
http://www.businessweek.com/magazine/content/03_49/b3861001_mz001.htm?c=bwinsidernov27&n=link1&t=email
DECEMBER 8, 2003
COVER STORY
The Rise Of India
Growth is only just starting, but the country's brainpower is already
reshaping Corporate America
Pulling into General Electric's (GE ) John F. Welch Technology Center,
a uniformed guard waves you through an iron gate. Once inside, you
leave the dusty, traffic-clogged streets of Bangalore and enter a leafy
campus of low buildings that gleam in the sun. Bright hallways lined
with plants and abstract art -- "it encourages creativity," explains a
manager -- lead through laboratories where physicists, chemists,
metallurgists, and computer engineers huddle over gurgling beakers,
electron microscopes, and spectrophotometers. Except for the female
engineers wearing saris and the soothing Hindi pop music wafting
through the open-air dining pavilion, this could be GE's giant
research-and-development facility in the upstate New York town of
Niskayuna.
It's more like Niskayuna than you might think. The center's 1,800
engineers -- a quarter of them have PhDs -- are engaged in fundamental
research for most of GE's 13 divisions. In one lab, they tweak the
aerodynamic designs of turbine-engine blades. In another, they're
scrutinizing the molecular structure of materials to be used in DVDs
for short-term use in which the movie is automatically erased after a
few days. In another, technicians have rigged up a working model of a
GE plastics plant in Spain and devised a way to boost output there by
20%. Patents? Engineers here have filed for 95 in the U.S. since the
center opened in 2000.
Pretty impressive for a place that just four years ago was a fallow
plot of land. Even more impressive, the Bangalore operation has become
vital to the future of one of America's biggest, most profitable
companies. "The game here really isn't about saving costs but to speed
innovation and generate growth for the company," explains Bolivian-born
Managing Director Guillermo Wille, one of the center's few non-Indians.
The Welch center is at the vanguard of one of the biggest mind-melds in
history. Plenty of Americans know of India's inexpensive software
writers and have figured out that the nice clerk who booked their air
ticket is in Delhi. But these are just superficial signs of India's
capabilities. Quietly but with breathtaking speed, India and its
millions of world-class engineering, business, and medical graduates
are becoming enmeshed in America's New Economy in ways most of us
barely imagine. "India has always had brilliant, educated people," says
tech-trend forecaster Paul Saffo of the Institute for the Future in
Menlo Park, Calif. "Now Indians are taking the lead in colonizing
cyberspace."
This techno take-off is wonderful for India -- but terrifying for many
Americans. In fact, India's emergence is fast turning into the latest
Rorschach test on globalization. Many see India's digital workers as
bearers of new prosperity to a deserving nation and vital partners of
Corporate America. Others see them as shock troops in the final assault
on good-paying jobs. Howard Rubin, executive vice-president of Meta
Group Inc., a Stamford (Conn.) information-technology consultant, notes
that big U.S. companies are shedding 500 to 2,000 IT staffers at a
time. "These people won't get reabsorbed into the workforce until they
get the right skills," he says. Even Indian execs see the problem.
"What happened in manufacturing is happening in services," says Azim H.
Premji, chairman of IT supplier Wipro Ltd. "That raises a lot of social
issues for the U.S."
No wonder India is at the center of a brewing storm in America, where
politicians are starting to view offshore outsourcing as the root of
the jobless recovery in tech and services. An outcry in Indiana
recently prompted the state to cancel a $15 million IT contract with
India's Tata Consulting. The telecom workers' union is up in arms, and
Congress is probing whether the security of financial and medical
records is at risk. As hiring explodes in India, the jobless rate among
U.S. software engineers has more than doubled, to 4.6%, in three years.
The rate is 6.7% for electrical engineers and 7.7% for network
administrators. In all, the Bureau of Labor Statistics reports that
234,000 IT professionals are unemployed.
The biggest cause of job losses, of course, has been the U.S. economic
downturn. Still, there's little denying that the offshore shift is a
factor. By some estimates, there are more IT engineers in Bangalore
(150,000) than in Silicon Valley (120,000). Meta figures at least
one-third of new IT development work for big U.S. companies is done
overseas, with India the biggest site. And India could start grabbing
jobs from other sectors. A.T. Kearney Inc. predicts that 500,000
financial-services jobs will go offshore by 2008. Indiana
notwithstanding, U.S. governments are increasingly using India to
manage everything from accounting to their food-stamp programs. Even
the U.S. Postal Service is taking work there. Auto engineering and drug
research could be next.
More Science in Schools
Tech luminary Andrew S. Grove, CEO of Intel Corp. (INTC ), warns that
"it's a very valid question" to ask whether America could eventually
lose its overwhelming dominance in IT, just as it did in electronics
manufacturing. Plunging global telecom costs, lower engineering wages
abroad, and new interactive-design software are driving revolutionary
change, Grove said at a software conference in October. "From a
technical and productivity standpoint, the engineer sitting 6,000 miles
away might as well be in the next cubicle and on the local area
network." To maintain America's edge, he said, Washington and U.S.
industry must double software productivity through more R&D investment
and science education.
But there's also a far more positive view -- that harnessing Indian
brainpower will greatly boost American tech and services leadership by
filling a big projected shortfall in skilled labor as baby boomers
retire. That's especially possible with smarter U.S. policy. Companies
from GE Medical Systems (GE ) to Cummins (CUM ) to Microsoft (MSFT ) to
enterprise-software firm PeopleSoft (PSFT ) that are hiring in India
say they aren't laying off any U.S. engineers. Instead, by augmenting
their U.S. R&D teams with the 260,000 engineers pumped out by Indian
schools each year, they can afford to throw many more brains at a task
and speed up product launches, develop more prototypes, and upgrade
quality. A top electrical or chemical engineering grad from Indian
Institutes of Technology (IITS) earns about $10,000 a year -- roughly
one-eighth of U.S. starting pay. Says Rajat Gupta, an IIT-Delhi grad
and senior partner at consulting firm McKinsey & Co.: "Offshoring work
will spur innovation, job creation, and dramatic increases in
productivity that will be passed on to the consumer."
Whether you regard the trend as disruptive or benefical, one thing is
clear. Corporate America no longer feels it can afford to ignore India.
"There's just no place left to squeeze" costs in the U.S., says Chris
Disher, a Booz Allen Hamilton Inc. outsourcing specialist. "That's why
every CEO is looking at India, and every board is asking about it."
neoIT, a consultant advising U.S. clients on how to set up shop in
India, says it has been deluged by big companies that have been slow to
move offshore. "It is getting to a state where companies are literally
desperate," says Bangalore-based neoIT managing partner Avinash
Vashistha.
As a result of this shift, few aspects of U.S. business remain
untouched. The hidden hands of skilled Indians are present in the
interactive Web sites of companies such as Lehman Brothers (LEH ) and
Boeing (BA ), display ads in your Yellow Pages, and the electronic
circuitry powering your Apple Computer (AAPL ) iPod. While Wall Street
sleeps, Indian analysts digest the latest financial disclosures of U.S.
companies and file reports in time for the next trading day. Indian
staff troll the private medical and financial records of U.S. consumers
to help determine if they are good risks for insurance policies,
mortgages, or credit cards from American Express Co. (AXP ) and J.P.
Morgan Chase & Co. (JPM ).
By 2008, forecasts McKinsey, IT services and back-office work in India
will swell fivefold, to a $57 billion annual export industry employing
4 million people and accounting for 7% of India's gross domestic
product. That growth is inspiring more of the best and brightest to
stay home rather than migrate. "We work in world-class companies, we're
growing, and it's exciting," says Anandraj Sengupta, 24, an IIT grad
and young star at GE's Welch Centre, where he has filed for two
patents. "The opportunities exist here in India."
If India can turn into a fast-growth economy, it will be the first
developing nation that used its brainpower, not natural resources or
the raw muscle of factory labor, as the catalyst. And this huge country
desperately needs China-style growth. For all its R&D labs, India
remains visibly Third World. IT service exports employ less than 1% of
the workforce. Per-capita income is just $460, and 300 million Indians
subsist on $1 a day or less. Lethargic courts can take 20 years to
resolve contract disputes. And what pass for highways in Bombay are
choked, crumbling roads lined with slums, garbage heaps, and homeless
migrants sleeping on bare pavement. More than a third of India's 1
billion citizens are illiterate, and just 60% of homes have
electricity. Most bureaucracies are bloated, corrupt, and
dysfunctional. The government's 10% budget deficit is alarming.
Tensions between Hindus and Muslims always seem poised to explode, and
the risk of war with nuclear-armed Pakistan is ever-present.
So it's little wonder that, compared to China with its modern
infrastructure and disciplined workforce, India is far behind in
exports and as a magnet for foreign investment. While China began
reforming in 1979, India only started to emerge from self-imposed
economic isolation after a harrowing financial crisis in 1991. China
has seen annual growth often exceeding 10%, far better than India's
decade-long average of 6%.
In the Valley's Marrow
Still, this deep source of low-cost, high-IQ, English-speaking
brainpower may soon have a more far-reaching impact on the U.S. than
China. Manufacturing -- China's strength -- accounts for just 14% of
U.S. output and 11% of jobs. India's forte is services -- which make up
60% of the U.S. economy and employ two-thirds of its workers. And
Indian knowledge workers are making their way up the New Economy food
chain, mastering tasks requiring analysis, marketing acumen, and
creativity.
This means India is penetrating America's economic core. The 900
engineers at Texas Instruments Inc.'s (TXN ) Bangalore chip-design
operation boast 225 patents. Intel Inc.'s (INTC ) Bangalore campus is
leading worldwide research for the company's 32-bit microprocessors for
servers and wireless chips. "These are corporate crown jewels," says
Intel India President Ketan Sampat. India is even getting hard-wired
into Silicon Valley. Venture capitalists say anywhere from one-third to
three-quarters of the software, chip, and e-commerce startups they now
back have Indian R&D teams from the get-go. "We can barely imagine
investing in a company without at least asking what their plans are for
India," says Sequoia Capital partner Michael Moritz, who nurtured
Google, Flextronics (FLEX ), and Agile Software (AGIL ). "India has
seeped into the marrow of the Valley."
It's seeping into the marrow of Main Street. This year, the tax returns
of some 20,000 Americans were prepared by $500-a-month CPAs such as
Sandhya Iyer, 24, in the Bombay office of Bangalore's MphasiS. After
reading scanned seed and fertilizer invoices, soybean sales receipts,
W2 forms, and investment records from a farmer in Kansas, Iyer fills in
the farmer's 82-page return. "He needs to amortize these," she types
next to an entry for new machinery and a barn. A U.S. CPA reviews and
signs the finished return. Next year, up to 200,000 U.S. returns will
be done in India, says CCH Inc. in Riverwoods, Ill., a supplier of
accounting software. And it's not only Big Four firms that are
outsourcing. "We are seeing lots of firms with 30 to 200 CPAs -- even
single practitioners," says CCH Sales Vice-President Mike Sabbatis.
The gains in efficiency could be tremendous. Indeed, India is
accelerating a sweeping reengineering of Corporate America. Companies
are shifting bill payment, human resources, and other functions to new,
paperless centers in India. To be sure, many corporations have run into
myriad headaches, ranging from poor communications to inconsistent
quality. Dell Inc. recently said it is moving computer support for
corporate clients back to the U.S. Still, a raft of studies by Deloitte
Research, Gartner, Booz Allen, and other consultants find that
companies shifting work to India have cut costs by 40% to 60%.
Companies can offer customer support and use pricey computer gear 24/7.
U.S. banks can process mortgage applications in three hours rather than
three days. Predicts Nandan M. Nilekani, managing director of
Bangalore-based Infosys Technologies Ltd. (INFY ): "Just like China
drove down costs in manufacturing and Wal-Mart (WMT ) in retail," he
says, "India will drive down costs in services."
But deflation will also mean plenty of short-term pain for U.S.
companies and workers who never imagined they'd face foreign rivals.
Consider America's $240 billion IT-services industry. Indian players
led by Infosys, Tata, and Wipro got their big breaks during the Y2K
scare, when U.S. outfits needed all the software help they could get.
Indians still have less than 3% of the market. But by undercutting
giants such as Accenture, IBM, and Electronic Data Systems (EDS ) by a
third or more for software and consulting, they've altered the
industry's pricing. "The Indian labor card is unbeatable," says Chief
Technology Officer John Parkinson of consultant Cap Gemini Ernst &
Young. "We don't know how to use technology to make up the difference."
Wrenching Change
Many U.S. white-collar workers are also in for wrenching change. A
study by McKinsey Global Institute, which believes offshore outsourcing
is good, also notes that only 36% of Americans displaced in the
previous two decades found jobs at the same or higher pay. The incomes
of a quarter of them dropped 30% or more. Given the higher demands of
employers, who want technicians adept at innovation and management, it
could take years before today's IT workers land solidly on their feet.
India's IT workers, in contrast, sense an enormous opportunity. The
country has long possessed some basics of a strong market-driven
economy: private corporations, democratic government, Western
accounting standards, an active stock market, widespread English use,
and schools strong in computer science and math. But its bureaucracy
suffocated industry with onerous controls and taxes, and the best
scientific and business minds went to the U.S., where the 1.8 million
Indian expatriates rank among the most successful immigrant groups.
Now, many talented Indians feel a sense of optimism India hasn't
experienced in decades. "IT is driving India's boom, and we in the
younger generation can really deliver the country from poverty," says
Rhythm Tyagi, 22, a master's degree student at the new Indian Institute
of Information Technology in Bangalore. The campus is completely wired
for Wi-Fi and boasts classrooms with videoconferencing to beam sessions
to 300 other colleges.
That confidence is finally spurring the government to tackle many of
the problems that have plagued India for so long. Since 2001, Delhi has
been furiously building a network of high- ways. Modern airports are
next. Deregulation of the power sector should lead to new capacity.
Free education for girls to age 14 is a national priority. "One by one,
the government is solving the bottlenecks," says Deepak Parekh, a
financier who heads the quasi-governmental Infrastructure Development
Finance Co.
Future Vision
India also is working to assure that it will be able to meet future
demand for knowledge workers at home and abroad. India produces 3.1
million college graduates a year, but that's expected to double by
2010. The number of engineering colleges is slated to grow 50%, to
nearly 1,600, in four years. Of course, not all are good enough to
produce the world-class grads of elite schools like the IITs, which
accepted just 3,500 of 178,000 applicants last year. So there's a
growing movement to boost faculty salaries and reach more students
nationwide through broadcasts. India's rich diaspora population is
chipping in, too. Prominent Indian Americans helped found the new
Indian School of Business, a tie-up with Wharton School and
Northwestern University's Kellogg Graduate School of Management that
lured most of its faculty from the U.S. Meanwhile, the six IIT campuses
are tapping alumni for donations and research links with Stanford,
Purdue, and other top science universities. "Our mission is to become
one of the leading science institutions in the world," says director
Ashok Mishra of IIT-Bombay, which has raised $16 million from alumni in
the past five years.
If India manages growth well, its huge population could prove an asset.
By 2020, 47% of Indians will be between 15 and 59, compared with 35%
now. The working-age populations of the U.S. and China are projected to
shrink. So India is destined to have the world's largest population of
workers and consumers. That's a big reason why Goldman, Sachs & Co. (GS
) thinks India will be able to sustain 7.5% annual growth after 2005.
Skeptics fear U.S. companies are going too far, too fast in linking up
with this giant. But having watched the success of the likes of GE
Capital International Services (GE ), many execs feel they have no
choice. Inside GECIS' Bangalore center -- one of four in India -- Gauri
Puri, a 28-year-old dentist, is studying an insurance claim for a
root-canal operation to see if it's covered in a certain U.S. patient's
dental plan. Two floors above, members of a 550-strong analytics team
are immersed in spreadsheets filled with a boggling array of data as
they devise statistical models to help GE sales staff understand the
needs, strengths, and weaknesses of customers and rivals. Other staff
prepare data for GE annual reports, write enterprise resource-planning
software, and process $35 billion worth of global invoices. Says GE
Capital India President Pramod Bhasin: "We are mission-critical to GE."
The 700 business processes done in India save the company $340 million
a year, he says.
Indian finance whizzes are a godsend to Wall Street, too, where
brokerages are under pressure to produce more independent research.
Many are turning to outfits such as OfficeTiger in the southern city of
Madras. The company employs 1,200 people who write research reports and
do financial analysis for eight Wall Street firms. Morgan Stanley (MWD
), J.P. Morgan (JPM ), Goldman Sachs (GS ), and other big investment
banks are hiring their own armies of analysts and back-office staff.
Many are piling into Mindspace, a sparkling new 140-acre
city-within-a-city abutting Bombay's urban squalor. Some 3 million
square feet are already leased to Western finance firms. By yearend,
Morgan Stanley will fill several floors of a new building.
For Silicon Valley startups, Indian engineers let them stretch R&D
budgets. PortalPlayer Inc., a Santa Clara (Calif.) maker of multimedia
chips and embedded software for portable devices such as music players,
has hired 100 engineers in India and the U.S. who update each other
daily at 9 a.m. and 10 p.m. J.A. Chowdary, CEO of PortalPlayer's
Hyderabad subsidiary Pinexe, says the company has shaved up to six
months off the development cycle -- and cut R&D costs by 40%.
Impressed, venture capitalists have pumped $82 million into
PortalPlayer.
More Bang for the Buck
Old economy companies are benefiting, too. Engine maker Cummins plans
to use its new R&D center in Pune to develop the sophisticated computer
models needed to design upgrades and prototypes electronically. Says
International Vice-President Steven M. Chapman: "We'll be able to
introduce five or six new engines a year instead of two" on the same
$250 million R&D budget -- without a single U.S. layoff.
The nagging fear in the U.S., though, is that such assurances will ring
hollow over time. In other industries, the shift of low-cost production
work to East Asia was followed by engineering. Now, South Korea and
Taiwan are global leaders in notebook PCs, wireless phones, memory
chips, and digital displays. As companies rely more on IT engineers in
India and elsewhere, the argument goes, the U.S. could cede control of
other core technologies. "If we continue to offshore high-skilled
professional jobs, the U.S. risks surrendering its leading role in
innovation," warns John W. Steadman, incoming U.S. president of
Institute of Electrical & Electronics Engineers Inc. That could also
happen if many foreigners -- who account for 60% of U.S. science grads
and who have been key to U.S. tech success -- no longer go to America
to launch their best ideas.
Throughout U.S. history, workers have been pushed off farms, textile
mills, and steel plants. In the end, the workforce has managed to move
up to better-paying, higher-quality jobs. That could well happen again.
There will still be a crying need for U.S. engineers, for example. But
what's called for are engineers who can work closely with customers,
manage research teams, and creatively improve business processes.
Displaced technicians who lack such skills will need retraining; those
entering school will need broader educations.
Adapting to the India effect will be traumatic, but there's no sign
Corporate America is turning back. Yet the India challenge also
presents an enormous opportunity for the U.S. If America can handle the
transition right, the end result could be a brain gain that accelerates
productivity and innovation. India and the U.S., nations that barely
interacted 15 years ago, could turn out to be the ideal economic
partners for the new century.
By Manjeet Kripalani and Pete Engardio
With Steve Hamm in New York
http://www.nytimes.com/2003/11/30/opinion/30GOOL.html
November 30, 2003
The Unemployment Myth
By AUSTAN GOOLSBEE
HICAGO
The government's announcement on Tuesday that the economy grew even
faster than expected makes the current "jobless recovery" even more
puzzling. To give some perspective, unemployment normally falls
significantly in such economic boom times. The last time growth was
this good, in 1983, unemployment fell 2.5 percentage points and another
full percentage point the next year. That's what happens in a typical
recovery. So why not this time? Because we have more to recover from
than we've been told.
The reality is that we didn't have a mild recession. Jobs-wise, we had
a deep one.
The government reported that annual unemployment during this recession
peaked at only around 6 percent, compared with more than 7 percent in
1992 and more than 9 percent in 1982. But the unemployment rate has
been low only because government programs, especially Social Security
disability, have effectively been buying people off the unemployment
rolls and reclassifying them as "not in the labor force."
In other words, the government has cooked the books. It has been a more
subtle manipulation than the one during the Reagan administration, when
people serving in the military were reclassified from "not in the labor
force" to "employed" in order to reduce the unemployment rate.
Nonetheless, the impact has been the same.
Research by the economists David Autor at the Massachusetts Institute
of Technology and Mark Duggan at the University of Maryland shows that
once Congress began loosening the standards to qualify for disability
payments in the late 1980's and early 1990's, people who would normally
be counted as unemployed started moving in record numbers into the
disability system - a kind of invisible unemployment. Almost all of the
increase came from hard-to-verify disabilities like back pain and
mental disorders. As the rolls swelled, the meaning of the official
unemployment rate changed as millions of people were left out.
By the end of the 1990's boom, this invisible unemployment seemed to
have stabilized. With the arrival of this recession, it has exploded.
From 1999 to 2003, applications for disability payments rose more than
50 percent and the number of people enrolled has grown by one million.
Therefore, if you correctly accounted for all of these people, the peak
unemployment rate in this recession would have probably pushed 8
percent.
The point is not whether every person on disability deserves payments.
The point is that in previous recessions these people would have been
called unemployed. They would have filed for unemployment insurance.
They would have shown up in the statistics. They would have helped
create a more accurate picture of national unemployment, a crucial
barometer we use to measure the performance of the economy, the
likelihood of inflation and the state of the job market.
Unfortunately, underreporting unemployment has served the interests of
both political parties. Democrats were able to claim unemployment fell
in the 1990's to the lowest level in 40 years, happy to ignore the
invisible unemployed. Republicans have eagerly embraced the view that
the recession of 2001 was the mildest on record.
The situation has grown so dire, though, that we can't even tell
whether the job market is recovering. The time has come to correct the
official unemployment statistics to account for those left out. The
government agencies that can give us a more detailed and accurate
picture of the nation's employment situation - the Census, the Bureau
of Labor Statistics and the Bureau of Economic Analysis - need
additional funds and resources from Congress to do their jobs.
Otherwise, announcements about a rebounding economy will continue to
show only half the picture. Take the revised numbers released by the
Commerce Department on Tuesday. They showed that output in the third
quarter grew at a rate of 8.2 percent, an extraordinary pace, and
productivity grew even faster. Almost no one noted, though, that Social
Security also announced the latest data on disability applications.
Almost 200,000 people applied in October - up 20 percent from the
previous month - tying the highest level ever. Despite the blistering
growth of the economy, the invisible unemployment problem continues.
We didn't have a mild recession and a jobless recovery. We covered up a
deep recession and will need a sizable bit of recovery just to get us
back to the point the unemployment rate suggested we already were. As
the Red Queen said to Alice in "Through the Looking Glass": "Here, you
see, it takes all the running you can do to keep in the same place. If
you want to get somewhere else, you must run at least twice as fast as
that!"
Austan Goolsbee is professor of economics at the University of Chicago
Graduate School of Business.
http://www.pjstar.com/news/topnews/b1flludq044.html
Blue-collar blues
Cities reliant on giants like Cat and Maytag must wean themselves off
assembly-line jobs
December 1, 2003
By JAN DENNIS
of The Associated Press
GALESBURG - George Carney has logged double shifts since last summer,
loading refrigerators into trucks during the day, then stocking coolers
and mixing drinks three nights a week at a small-town bar.
His workdays will be sliced in half when Maytag shutters its Galesburg
plant by the end of next year, leaving him with just the tavern he
bought to start a new career after Maytag moves to Mexico for cheaper
labor.
"My father told me years ago that the best way to get ahead is to own
your own business and control your own destiny. We were pretty much
forced into it from what's going on here," said Carney, a 20-year
Maytag worker.
More than a year after the region's biggest employer announced the
move, this city of 33,000 is still reeling over the impending loss of
1,600 jobs that have anchored its economy.
"People are devastated, disappointed and afraid of what the closing
will do to our town and to them, personally," said Johan Ewalt,
co-owner of an upscale coffee shop in a still-bustling downtown.
Those fears have swept across the state as a historic economic
expansion plummeted into a recession that has left Illinois with
233,900 fewer jobs than it had in June 2000, according to the Illinois
Department of Employment Security.
Manufacturing has been hardest hit, a staggering trend in downstate
cities where factories once provided a well-paying path from high
school to the work force.
"I'm not worried about myself, but what about my kids and grandkids?
Where is there going to be jobs for them?" said Mary Ann Armstrong, who
plans to retire next year after 30 years at Maytag.
Peoria, Galesburg hit
Her concerns are shared by workers in Decatur, Peoria and the Quad
Cities, which lost a combined 14,300 blue-collar jobs since 2000. All
have wrestled with unemployment rates of nearly 8 percent or more as
they try to reinvent local economies once tethered to assembly lines.
"We are a community in transition," said Craig Coil, president of the
Economic Development Corporation of Decatur and Macon County, where a
recently opened cell phone customer service center is part of the
evolving job mix.
Factories once provided nearly 30 percent of Decatur's jobs but now
account for 11 percent after a series of shutdowns that included a
1,500-employee Bridgestone/Firestone plant two years ago.
Peoria has ramped up efforts to lure technology-based businesses and
revitalize its Downtown riverfront after losing 5,900 factory jobs over
the last three years, many at its signature business - Caterpillar Inc.
"It won't happen overnight. The manufacturing downturn started 20 years
ago. It probably will take 20 years to build the new economy," said Jim
McConoughey, who heads the parent company for Peoria County's Chamber
of Commerce and Economic Development Council.
The lost jobs have stifled growth in many cities outside the Chicago
metropolitan region. Peoria was nearly flat at about 113,000, compared
to a statewide population gain of 8.6 percent. Decatur's population
dipped 2.4 percent in the 2000 census, to just under 82,000.
Greg Baise, president and CEO of the Illinois Manufacturers
Association, said the slide is equally disturbing because well-paying
factory jobs have been a cornerstone of the middle class.
"It's been the economic backbone for many Illinois communities," Baise
said.
Communities lose, too
Analysts say the impact extends beyond the wallets of displaced
workers. Tax dollars shrink for cities and schools, while the United
Way and other charities lose hefty corporate donations that once
maintained social service programs.
In Galesburg, Maytag was responsible for 22 percent of United Way's
contributions last year - meaning its departure will carve deeply into
funding for Girl Scouts, Boy Scouts and programs for the elderly, among
other things.
"When jobs leave, it's not just jobs. There are social consequences we
don't think about much," said Frank Beck, director of Illinois State
University's Stevenson Center, which teaches and studies economic
development.
Peoria's example
Factory job losses have slowed compared with the last two years, a sign
that the manufacturing decline may be leveling off, said Mitch Daniels,
a labor market economist for the Illinois Department of Employment
Security.
"It does appear that we may be at the starting gates of a turnaround,"
Daniels said.
But even after the economy improves, labor experts predict that the
face of manufacturing will change in Illinois. Instead of giant
factories with thousands of workers, the state will move toward small,
specialty plants with anywhere from a handful to a few hundred
employees.
McConoughey pointed to a new Peoria business that has developed a
sensor to electronically track runners during races. He said the
fledgling Mercury Sports has only four employees now but could
ultimately grow to 400 or 500.
"If we could get just 10 of those little businesses up and running
every year, it would generate thousands of new jobs," McConoughey said.
Analysts say the state also can capitalize on its farm economy,
building plants to turn Illinois' waves of grain into ethanol,
biodiesel and specialty food products.
Cat, Maytag pare jobs
Many of the well-known companies that have helped make manufacturing
one of the main cogs in the state's economy also will remain part of
the mix but won't offer the same opportunities they did even a decade
ago.
Caterpillar has trimmed its Illinois employment from 26,000 to 20,000
workers over the last five years, largely through technology and
shifting work to foreign plants to better serve its global market.
Still, the company says Illinois remains the center of its operations.
"This is our home. Our roots are very deep here. We have some very
large facilities and assets here," said Caterpillar spokesman Ben
Cordani.
That hometown loyalty is an advantage in retaining jobs, whether in
manufacturing or another sector, said Beck, of ISU's Stevenson Center.
"It's been shown a number of times that a company in a place where the
owner lives tends to stay put rather than leave," Beck said.
Galesburg hopes to mimic that homegrown approach as it seeks to replace
the jobs that will vanish when Maytag closes its plant at the edge of
town, said Eric Voyles, president and CEO of the Galesburg Regional
Economic Development Association.
His group will expand an incubator program that develops new
businesses, and is exploring a privately financed venture capital fund
that would provide low-interest loans to help sustain new companies.
Twin Cities' success
But the cornerstone of Galesburg's plan is an effort started before
Maytag's announcement. The city spent $4 million for 350 acres along
Interstate Route 74 that will be marketed to companies for warehousing
and distribution centers. It's considered a growth opportunity for
Illinois as companies seek central sites to serve their markets.
Voyles hopes to lure an array of firms to the now-open field when sales
begin early next year.
"It's going to be much better for us to have 10 companies employing 100
people than bringing in one company that employs 1,000," he said.
That formula has worked well in Illinois cities such as
Bloomington-Normal, which experts point to as an oasis amid the state's
economic doldrums.
The Twin Cities flourished thanks to a diverse blend of employers that
includes State Farm, Country Financial, Mitsubishi and two
universities.
"Because of the broad economic base, we don't have the ups and downs to
the same degree the rest of the world does," said Jesse Smart, who was
mayor of Bloomington during a growth spurt that made McLean the state's
eighth fastest-growing county in the 2000 census.
State Farm fueled much of the growth, nearly doubling its local work
force to about 13,000 in the 1990s.
Company spokesman Steve Vogel said growth was so rapid that State Farm
began considering the impact on the community as it made decisions
about adding jobs in Bloomington. "Just how clogged do you want
Veterans Parkway?" he said.
Voyles hopes Galesburg someday faces similar problems. In the meantime,
he predicts lean times as the city tries to rebuild a post-Maytag
economy, saying unemployment could jump from 5 percent to nearly 20
percent after the plant closes.
But he and others say the city will survive, just as it did about 15
years ago when a boat motor plant and mental health center closed,
eliminating about the same number of jobs.
"We've got some good minds here. I don't think Galesburg is going to be
a ghost town," said retired teacher Linda Hinrichs.
http://www.theinquirer.net/?article=12967
Indian government defends outsourcing
Be patriotic. Go on the dole
By euromole: Tuesday 02 December 2003, 08:04
IN DELHI LAST Saturday, Indian prime minister Atal Bihari Vajpayee
told an EU delegation that outsourcing to India is the consequence of
barriers to free movement of Indian professionals into other countries.
He claimed that the declining birth-rates and ageing population in
Europe and America required an influx of foreign workers to fill the
gaps but while restrictions remain on the movement of professional
people, the only recourse for companies was to send the work to where
the people are located.
In his defence of outsourcing he appears to be simplifying some issues
and ignoring others.
Firstly, outsourcing is a consequence of rates of pay and not of a
shortage of workers, as indeed tens, if not hundreds, of thousands of
unemployed IT workers will tell him. When IT workers in India cost less
than 25% of their counterparts in Europe and the USA, that is a
powerful motivator for most businesses.
It also gives a reason why some companies are shifting outsourcing out
of India and into countries with even lower costs.
Vajpayee also claimed that the emotive arguments against outsourcing
have missed some basic issues about increasing the competitiveness and
global reach of European and American companies, but again his
arguments hold little water.
It is a fundamental truth that any level playing field produces
competition and regardless of whether that playing field is associated
with high or low costs, competitiveness would still exist. Most
companies already vary the pricing of a product on the basis of country
or general region so the extent of their global reach is likewise
already under their control.
Vajpayee apparently failed to mention the compelling argument that
offshore outsourcing is in accord with global agreements on
international trade and that it is a matter for the individual
companies and organisations if they wish to take advantage of lower
costs.
Personally I am more concerned about the governments who either
actively encourage offshore outsourcing or who themselves become
clients of this service because both actions act against the interests
of their own citizens. It seems no longer wise to ask what you might do
for your country because the answer may be to give up your job.
Protectionism against outsourcing is no answer because it is only fair
that every country should be able to offer these kinds of services. The
real issue is more that the changes are taking place so rapidly that
the social adjustment is proving difficult for the major client
countries of outsourcing. That is the greater problem that needs to be
addressed. 5
http://greenvilleonline.com/news/business/2003/12/02/2003120220214.htm
Hitachi to lay off 220
Posted Tuesday, December 2, 2003 - 7:53 pm
By Jenny Munro
BUSINESS WRITER
jmunro@greenvillenews.com
Greenville-based Hitachi Electronic Devices (USA) Inc. said Tuesday it
is laying off 220 of its employees, citing the weak economy and lack of
customer demand for its big-screen televisions.
Hitachi manufactures projection ray tubes for big-screen TVs at its
plant along Interstate 85, and company officials said Tuesday they
remain committed to the Greenville plant. The layoff will leave about
500 workers at a plant that once employed a high of 1,350.
"Changes in our markets have been dramatic and have necessitated a
change in our manufacturing structure in the Greenville plant and our
sales force," Yoshimichi Shibuya, the company's president and chief
executive officer, said in a statement. "These market conditions have
dictated that we reduce the amount of production and streamline
remaining operations to best compete on price in the world market for
PRTs (projection ray tubes)."
While Hitachi didn't address the changing marketplace in its
announcement, the growth of digital electronics and China's emergence
as a TV manufacturing giant are factors affecting the global markets,
according to industry experts.
Many big-name makers have either scaled back or curtailed production of
analog sets, primarily because analog commercial TV broadcasts are
scheduled to stop as of January 2007 under a federal mandate
Hitachi Electronic Devices is a subsidiary of Hitachi America Ltd. Its
parent company, Hitachi Ltd. is based in Tokyo and is a global
electronics company with about 340,000 employees.
About 205 workers will be laid off at the manufacturing facility and
the rest at Hitachi's Norcross, Ga., sales office, which is being
closed, said Bill Davis, the company's vice president and general
manager.
Hitachi began operating in Greenville in 1990 and had its first
permanent job cuts in the summer of 2001, when the company had 1,350
employees.
The Greenville plant had two other major layoffs in 2001 and 2002. When
the company cut 270 employees in March 2002, it also exited the color
picture tube industry. When the current layoff is completed, Hitachi
will have about 500 employees.
Shibuya said that "there is a strong future product growth potential"
for Hitachi, but that "in the short term we must make these difficult
adjustments in order to survive the current weak economy and price
erosion pressure on our product."
Greg Tarr, an industry analyst, said that sales are down dramatically
for rear-projection analog televisions, but the digital side of the
market is holding up. He said Hitachi also is caught in an
industry-wide move to embrace silicon chip technology and mothball
cathode ray tubes.
Tarr said Hitachi has advanced technology now being used in its
business sector products that could be moved into consumer products.
Hitachi officials said the company is pursuing technologies for new
products, such as liquid crystal on silicon display panels, which could
possibly be assembled at the Greenville facility.
Shibuya said that Hitachi is "committed to the future viability of our
plant, and that means aggressively addressing the realities of the
current and future marketplace."
Kailash Khandke, a Furman University economist, said that Hitachi's
layoffs are "obviously not good for the Greenville economy to be losing
jobs."
He said that manufacturing in general has been wrestling for a couple
of years with both a slow economy and overcapacity.
"Firms are looking at increasing productivity," he said. "They need to
deliver the product at the lowest possible price."
At the same time, China has rocketed as a major player in television
manufacturing.
Last month, TCL International Holdings Inc. and Thomson SA, the French
company that owns the American television brand RCA, announced a joint
venture to produce 18 million TV sets and up to 4 million DVD players a
year, according to The Associated Press. Annual revenues are forecast
to exceed $3.49 billion.
Thomson now sells 7 million RCA televisions a year worldwide, including
some under the GE brand in the United States. TCL, China's
second-biggest maker of TVs and cellular phones, exports about a third
of the 10 million sets it makes each year, according to the AP.
"Consumer electronics left the United States long ago, and now
production is being consolidated in China," said Andy Rothman, China
strategist for CSLA Emerging Markets. "There clearly is a shift to
China as a major manufacturing platform for world consumption."
That's a natural move, Khandke said.
"If we are going to think about a global economy, other countries will
take advantage of their natural resources, which is low-cost labor," he
said.
With everything happening at the same time, it's hard to pick apart
what is causing the loss in jobs and the general manufacturing
slowdown, he said.
Hitachi's latest layoff consists of shutting down the company's third
production line, which was running half a week, Hitachi's Davis said.
Employees are meeting with plant officials individually, he said. They
will be told how they are affected during their meeting. If they are
being laid off, they will be given a severance package, based on the
years of service, and insurance benefits through their severance pay
period. Salaried employees also will have an outplacement package to
help them find new jobs.
The company is calling area manufacturing plants to try to help
production workers find jobs, Davis said.
"There's not a lot," he said, but "we're using every available means to
help them."
He said the company and its forecasters expect customer orders to
improve in April, May or June. Although no automatic recall program is
in place, any former worker who wants to can apply when jobs become
available.
http://www.nytimes.com/aponline/business/AP-Aviva-Jobs.html?ex=1071388078&ei=1&en=5d22d3ed76b10be2
December 2, 2003
Aviva Insurance Plans to Hire in India
By THE ASSOCIATED PRESS
Filed at 12:39 p.m. ET
LONDON (AP) -- Aviva PLC, one of the the world's biggest insurance
groups, plans to hire 2,500 people in India in 2004 while cutting up to
500 jobs in Britain and Canada.
British-based Aviva said the new jobs in India -- 2,000 in
administration and information technology and 500 at call centers to
support the group's general and life insurance businesses -- will back
up its operations in Britain and Canada.
The company said 80 percent of the jobs created in India will be
accommodated by a combination of expansion, vacancies, staff turnover
and voluntary departures in Britain and Canada. But it said it could
not rule out layoffs in Britain and Canada.
Aviva employs 59,000 staffers worldwide, including 33,000 in Britain.
Richard Harvey, group chief executive of Aviva, said the company was
operating in an increasingly competitive environment.
``Our customers want value for money products and high levels of
service so it is vital that we continually explore opportunities to
improve our efficiency while maintaining service levels,'' he said.
``Our staff in India are an important part of this process and our
experiences to date have been positive.
Dave Fleming, national secretary of the Amicus union, called upon Aviva
to reverse its decision. ``These job cuts will have a serious effect on
many local communities where Aviva has sites for the sake of a 40
percent saving that will not be passed onto their customers,'' Fleming
said in a statement.
Asked about British companies transferring work to India, Prime
Minister Tony Blair said at his monthly news conference that such
changes can't be prevented.
``We live in an economy today which is global, in which there is going
to be a lot of churning of jobs, in which the old concept of 9-5 jobs,
that people kept the same job for many many years, is changing, has
already changed,'' Blair said.
``And the best thing that government can do is not offer a false
prospectus to people that we can prevent these changes, but on the
contrary help people -- through education, through skills, through an
active employment service -- to find new jobs,'' Blair said.
http://www.technewsworld.com/perl/story/32284.html
Known Around the World: Private Records May Be at Risk
By Jay Fitzgerald
December 3, 2003
"They started off sending American jobs overseas," said U.S. Rep.
Edward Markey (D-Malden), co-chair of the congressional Privacy Task
Force. "Now Americans get to lose their jobs and their privacy at the
same time."
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Someone in Asia may be looking at your income tax returns or reading
sensitive doctors' notes about your medical history.
That may sound like another nightmare case of Internet hackers cracking
into sensitive computer files. But it's actually the type of highly
sensitive data that U.S. corporations are increasingly making available
to overseas workers who are now doing everything from processing
Americans' credit-card bills to making sure you returned a rental movie
on time.
To date, the outsourcing of back-office jobs to other countries --
from India to the Ukraine -- has not led to a major breach of privacy
or a proven case of identity theft by a foreign worker.
But the outsourcing industry was given a major scare recently when a
Pakistani woman, who works in Asia and transcribes medical notes about
Americans, threatened to post patients' records on the Internet unless
she got a raise.
Experts say such incidents will increasingly occur -- and it's only a
matter of time before a huge scandal erupts.
"They started off sending American jobs overseas," said U.S. Rep.
Edward Markey (D-Malden), co-chair of the congressional Privacy Task
Force. "Now Americans get to lose their jobs and their privacy at the
same time."
The hot-button issue has risen to the level of presidential politics,
with U.S. Sen. John Kerry (D-Mass.) proposing a "Call Center Consumer's
Right to Know Act," designed to protect the jobs and privacy of
Americans.
The back-and-forth flow of data between the United States and foreign
work sites is tied to the escalating corporate trend of outsourcing
jobs to developing countries.
Outsourcing Controversy
The outsourcing controversy has mostly focused on the loss of tens of
thousands of U.S. high-tech jobs to developing countries.
But an increasing number of outsourced jobs also include call- center
personnel, accountants, financial analysts, medical assistants and
others in posts with access to personal data , from Social Security
numbers to bank records.
Two of the three major credit-reporting agencies in the United States
are also planning to outsource operations abroad and, along with them,
sensitive data about the credit histories of hundreds of millions of
Americans.
Defenders of outsourcing say a combination of U.S. laws and strict
security measures by corporations will protect Americans' privacy.
"We're extremely sensitive to the need for (security)," said Jim
Brewer, a vice president at Boston-based Keane Inc. The technology
consulting firm recently bought an Indian company to handle outsourced
back-office functions for its U.S. clients.
"We're still governed by the laws of the United States," Brewer said.
Legal Loopholes
But critics say privacy laws in the United States -- unlike those in
the European Union -- have too many legal loopholes that permit the
outsourcing of both jobs and data with little built-in protections.
"The business community has put the American public in a very
vulnerable position," said Chris Hoofnagle, a lawyer with the
Electronic Privacy Information Center in Washington.
"Most American privacy laws don't deal with the exporting of data-
processing jobs and information."
The privacy of patients' health records is supposed to be covered by
the U.S. Health Information Portability and Accountability Act, which
prevents health-care companies from selling information to, for
instance, telemarketing firms. A similar law applies to financial
information.
But Hoofnagle and others say companies can legally transfer that
information -- as opposed to selling it to a third-party -- to overseas
firms if those companies are providing direct vendor services for U.S.
corporations.
That was the type of work the Pakistani woman was doing when she used
Americans' medical records as a means to try to squeeze a raise out of
her employer. She was working for an outsourcing company under contrcat
by the University of California-San Francisco Medical Center.
Massachusetts General Hospital is one of many regional hospitals that
outsources work to India and elsewhere, from X-ray development to
transcription services.
Deborah Adair, MGH's chief privacy officer, said the California
incident is an aberration -- and MGH has much more strict contracts and
guidelines to protect patients' records. "It's all about good, solid
contracting," said Adair, whose hospital has agreements with a number
of Indian companies to handle back-office work.
A Matter of Time
But Ian Mahony, a Boston lawyer who represents U.S.-based companies
that outsource work, said he fears it's only a matter of time before a
major scandal occurs.
He noted that outsourcing back-office work to domestic companies is
already rife with risks -- and those risks are merely multiplied when
work is outsourced overseas. Developing countries might not have the
laws, infrastructure and police support to deter abuse by their
workers, Mahony said.
Mahony said he "cautions" U.S. companies to think twice before
outsourcing duties, if only because of the risks of being sued or
angering consumers should sensitive data leak out.
But competitive pressures and the attraction of cheap labor almost
ensure that the pace of outsourcing will quicken, officials say. To
critics, corporations say simply: Trust us, we have rules and
procedures to protect private information.
Not good enough, some critics say.
"It's absolutely not adequate," Markey said of corporate vows to
protect customers' privacy. "It's probably going to take a huge
(scandal) to implement adequate privacy laws."
) 2003 ProQuest Information and Learning Company i/a/w Pinnacor, Inc.
All rights reserved.
) 2003 ECT News Network. All rights reserved.
http://biz.yahoo.com/fo/031204/42c5aaadaf663fe6dca5471ed5ba2266_1.html
Forbes Magazine
Profits and Layoffs
Thursday December 4, 6:33 pm ET
By A. Gary Shilling
Productivity gains in this recovery are mostly the result of trimming
workers from the payroll. And so earnings have benefited. Alas, this
elixir can't keep working forever. Look out.
The jobless recovery, much in the news lately, is a scary notion.
That's why optimists seize upon any shred of evidence that employment
is coming back, such as the small downtick in unemployment claims in
mid-November. And we keep hearing that U.S. unemployment really isn't
so bad after all--just 6.1%, versus three percentage points higher in
Europe.
So there's nothing to worry about, right? Wrong. Layoffs are a key
concern. And that will have baleful consequences for investors who are
betting on better times.
First, a resurgence in hiring is problematical. Companies just don't
need more workers. Consumer demand isn't very robust. Despite the
terrific news for third-quarter profits, the top lines--which drive
hiring decisions--are again subdued for most U.S. corporations. And
with global excess capacity and robust deflationary forces, pricing
power is nil. Then there's the question of productivity. Business is
producing more with fewer people. In the seven quarters since the
recovery supposedly started, through Sept. 30, real gross domestic
product was up 6.2% and payroll employment was down 0.8%.
The nation saw a productivity boom in the 1990s, chiefly powered by
marvelous advances in information technology. Better labor training,
more-efficient staffing structures (fewer managers) and smarter
corporate strategy were helpful. Today's better productivity, though,
is catalyzed by layoffs.
Don't count on business anytime soon to step up capital spending, which
could increase the need for more workers. Inventories are low in
relation to sales, and companies now prefer backlogs to more inventory
on the shelves. Why hold inventory in a world beset by deflationary
pressures? Also, there's too much excess industrial capacity and vacant
commercial space to spawn an economy-loading capital spending boom.
Meanwhile, a host of other factors are stopping employers from adding
to head count. Larger companies are facing requirements to restore
depleted pension-fund assets, a need that drains away capital. And
everyone in the corporate world suffers from spiraling health care
costs, one area of the economy that hasn't apparently heard about the
end of inflation.
The sober truth is that cutting costs is the only route to profits
salvation these days. Most costs, directly or indirectly, are labor.
And that means more layoffs.
These announcements just keep coming. Sprint, for instance, said on
Nov. 24 it would lop 2,000 workers, 2.9% of its payroll. The latest
manufacturing employment numbers (six months through October) show a
1.4% drop, about in line with a year ago. The average time someone
spends unemployed is longer lately, a fact that isn't encouraging for
the future: It hit 19.4 weeks in the May-October period, up from 17.0
in the same period in 2002.
Foolishly, bulls look at current earnings increases and see more
strength ahead. Estimates show Standard & Poor's 500 reported earnings
for the September quarter were up 27% from a year ago; operating
earnings, which remove one-time expenses, were up 18%. Current lofty
stock prices demand earnings gains of 20% next year.
Sorry, the party can't continue. Cost-cutting layoffs will squeeze
consumer incomes. Fiscal and monetary stimuli, which masked the
devastating effects of layoffs on consumer incomes, are fading, too.
The jump in mortgage rates this summer terminated the mortgage
refinancings and home equity loans that have tided people over. The
$400 Child Tax Credit, the only economy-thumping part of the 2003 tax
cuts, has been long since spent at Wal-Mart. The big bulge in Iraq
spending, $52 billion during the two-month-long hot war phase, is
history.
The consumers who have kept the economy going are not going to be in
the checkout lines. Their newfound zeal for saving will pinch spending
further. The spillover to housing will break that bubble (see my Oct.
14, 2002 column) and seal the case for a 2004 recession.
The result: I foresee a profits decline next year with S&P 500
operating earnings down 9% to $49 per share and reported earnings down
13% to $39. What a blow to investors who believe S&P's estimates of $62
per share for operating earnings next year and $56 for reported
earnings.
I hate to be the bearer of bad tidings. But if you expect the economy
and the market to keep climbing next year, you will be sorely
disappointed.
A. Gary Shilling is president of A. Gary Shilling & Co., economic
consultants and investment advisers. Visit his homepage at
www.forbes.com/shilling.
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