<US economy>Job Cuts Not Hampering Overall Economy
Lee:
Best news I heard all day!!!!
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(Courtsey-Marketwire-fox)
8.09 a.m. ET (1309 GMT) December 4, 1998 By Gary Gentile
With Boeing, Exxon, Kellogg and other companies announcing huge job cuts, workers everywhere may very well be wondering if they're next. But experts say the job losses are not the tip of some recession-bearing iceberg and, paradoxically, may spell good news for the economy.
The announcement by Seattle-based Boeing Co. that it would eliminate another 20,000 jobs and scale back airline production was a direct result of the fiscal crisis affecting much of Asia — lowered demand resulted in lowered supply. But the thousands of jobs lost because of cost-cutting related to mergers, such as the planned joining of Exxon and Mobil, are not the result of a weakened economy, but the sign of a strong one.
"I don't think we're moving into recession," said John Challenger, the head of Challenger, Gray & Christmas, a Chicago-based international outplacement firm that tracks corporate layoffs. "If you're one of those people laid off, it's tough out there. But downsizing has been part and parcel of the extraordinary expansion we've been in."
Challenger noted that 1998 may see the largest number of jobs lost to downsizing this decade. But he also said that more than 200,000 new jobs per month have been created through much of the 1990s. Downsizing causes short-term pain, but often leads to long-term gain.
"What it allows companies to do is get out of the area where they are unprofitable, unproductive and uncompetitive and move those resources to where there is better potential and more room for growth," he said.
Despite the job cuts, most fundamental economic indicators continue to reflect a healthy economy with rising worker productivity and an increase in purchasing power. Consumer confidence also remains high, with retailers expecting this holiday shopping season to be one of the best in recent memory.
"Every slowdown, every recession we've had since World War II has been triggered by the Federal Reserve raising interest rates to battle inflation," said Ron Muhlenkamp, portfolio manager of the Muhlenkamp Fund. "This time, we have 15-20 percent of the economy in a slowdown, but it's actually benefiting the rest of it. The 15-20 percent of the economy that is slow doesn't write that many paychecks. Oil is a big industry, but it doesn't have as many employees as, say, retail. To the extent that people look at their paychecks, people are in good shape."
In fact, Muhlenkamp says, falling prices of oil and other commodities, while bad news for the oil, metals and agriculture sectors of the economy, are good news for the rest of us.
"The price of gas, the price of food is down," he said. "Car prices will be less. For the consumer, this is good."
Muhlenkamp also says that the strong economy continues to create new, high-paying jobs for workers who are not afraid of being retrained.
"We haven't done a good job of removing the fear of being trained for the next job," he said. "There are jobs to be had and there are good jobs to be had. Anyone who wants to can get a job and anyone who wants to learn can get a better job. If you read the headlines, you would think that unemployment has gone from 4.6 percent to 10 percent, but it's still at 4.6 percent."
In fact, the low unemployment rate is not generally a good sign for the economy, Challenger notes, because it means skilled workers are scarce and wages will have to rise to attract much-needed labor. But the strong job market is good news for the thousands recently handed their pink slips, he says.
"This downsizing is being welcomed by many employers," he said. "There might be a few more people out there with skills they can acquire."
Challenger cautions that weak spots in the economy do exist and may mean trouble next year as deflationary forces continue to drive prices down.
"The cutbacks have been happening in semiconductors, oil and oil services, and steel — the basic building blocks of this economy. It is of concern when you see that those industries are glutted with product and prices are falling. That should give people cause for concern in 1999. But the other fundamental piece, the key one that has driven this expansion, is still in very short supply and that's people with skills."
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