Breaking the Rules: Jobs Fall, Sales Rise
A fragile economy gets more conflicting news
More than 220,000 jobs vanished from the U.S. economy in April. This, said forecasters, would almost surely quash consumer appetites, the mainstay of the economy. Guess again. Instead, new reports show, retail sales surged in April, and consumer confidence rebounded in early May. As it turns out, not all job losses are created equal. Companies looking to trim payrolls are turning first to the easy pickings: employees eager to take buyouts or low-skilled workers who can be replaced relatively simply. Not in immediate danger: those with the most skills, who also happen to make the most in salary.
"After living through the last few years of labor shortages, the last people that will be fired are those with needed skills," explains Joel Naroff of Naroff Economic Advisors. This strategy tends to hurt worker productivity numbers--which fell in the first quarter for the first time in six years--but it protects the pocketbooks of the economy's most avid buyers of autos, homes, furnishings, and other goods. Thanks to income growth of 5.2 percent in the first quarter--and bargain prices at many retailers--sales at stores open at least a year rose almost 4 percent in April; overall retail sales, which include vehicles, gas stations, and restaurants, rose 0.8 percent.
That's not what analysts expected after April's job report showed the unemployment rate rose to 4.5 percent, up from 3.9 percent in October. "When unemployment rises by as much as it has, you almost always have a recession," says Goldman Sachs chief U.S. economist William Dudley.
Survivors. The difference now may be that employers are more careful about whom they fire. At Walt Disney Co.'s theme parks, a round of layoffs was aimed mostly at behind-the-scenes salaried staff. Exempted were information technology staffers, who run the computers that control everything from Disney's E-mail systems to Space Mountain. "That talent is critical," said company spokes-man Bill Warren. Other firms, including DuPont, DaimlerChrysler, Lucent, and Union Pacific, aren't letting go of workers they've spent years trying to recruit--that would be akin to eating seed corn.
Still other companies are taking advantage of layoffs to grab talent once untouchable. "We're taking this as an opportunity to upgrade," said Ben Friedman, a partner at Iconologic.com, a branding company for advertising, interactive media, and design. Other firms are maintaining or even stepping up efforts to retain workers. At wireless consultant Go America in Hackensack, N.J., employees now get weekly massages. At computer reseller Small Dog Electronics in Waitsfield, Vt., not only do workers get fully paid health insurance--their dogs do, too. "Keeping people is one of my highest priorities," said CEO Don Mayer.
In any event, announced layoffs rarely translate into one-for-one job losses. Companies hoping to prove to Wall Street that they're serious about rebuilding profit margins often promise more cuts than they plan to deliver. Some cut unfilled positions; others are laying off workers overseas; some are still hiring. "Things are still pretty steady," says Catherine Candland, chief executive of Advantage Human Resourcing, a temporary-staffing firm based in Stamford, Conn. Some of her clients are firing and hiring at the same time--she won't say which ones.
Of course, further rises in joblessness would likely dampen both confidence and spending. That's critical, because even with a less-than-expected rise in consumer credit in March, Americans are still relying heavily on debt to prop up their finances. That may be a major factor in prompting the Federal Reserve to make a further cut in interest rates this week: Making debt more affordable could be just what the economy needs, even if it's bad for household balance sheets.
More economists are starting to think the Fed's medicine--perhaps with help from the upfront tax cut approved in outline by Congress last week--will pep up the economy. A National Association for Business Economics survey shows its members figure only a 35 percent chance of a recession this year and only 25 percent next year. Investors are betting that Fed rate cuts will bring that probability close to zero. With a bit more help from consumers, the Fed may have only one thing left to do: tell economists to dust off their soft-landing scenarios.
Retail rebound
Retail sales, percent change from previous month
[Complete data for chart not available.]
Sept. 2000 0.8 pct.
Nov. 2000 -0.6 pct.
Jan. 2001 1.3 pct.
Apr. 2001 0.8 pct
Source: U.S. Dept. of Commerce
This story appears in the May 21, 2001 print edition of U.S. News & World Report.
advertisement
