Return to Transcripts main page
American Morning
Job Cuts Impacting More Than Company Profits
Aired July 25, 2001 - 10:23 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
STEPHEN FRAZIER, CNN ANCHOR: To the slowdown in the economy now: It has forced many companies to slash jobs in order to try to trim expenses.
But the costs incurred there extend well beyond the company's profits, as CNN Financial News reporter Peter Viles explains now.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): The bad news is coming from all walks of corporate life, from Saks Fifth Avenue to Snap-on Tools. From Murray Hill, New Jersey to Dallas, Texas, job cuts by the thousands, as corporate America tries to slash its way out of a profit recession.
JOHN CHALLENGER, CHALLENGER, GRAY & CHRISTMAS: These layoffs are shocking, they're unprecedented in their size. We've seen more layoffs this year through June than we saw all of last year.
VILES: The biggest number from New Jersey, Lucent, to shed up to 20,000 more jobs. In Dallas, RF Monolithics will cut half its work force, 250 jobs. In Tupelo, Mississippi, HON Industries will close its furniture plant, 300 jobs will go. Wisconsin-based Snap-on Tools will cut 560 jobs, Long Island-based Arrow Electronics, 1,000 jobs in the third quarter. Alabama-based Saks will shut its store in White Plains, New York, 100 jobs at risk.
Increasingly, economists are worried that job-cutting will slice into consumer confidence and send the economy deeper into its funk.
STEPHEN ROACH, MORGAN STANLEY: As more jobs are taken out of the U.S. economy, there is another down leg coming. So, it postpones the time where we can say a true bottom is at hand, it lengthens the process of economic adjustment that I still think will culminate in a recession.
VILES: Another fear: the drum beat of layoff news may blunt the impact of tax rebates and tax cuts.
LAKSHUMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: A lot of that will depend on consumers' job security. If they're feeling secure, they'll spend it. If they're feeling insecure, even if they have a job, they may move more to pay down debt or to save that money. So, it's all about perceptions. (on camera): Right now, the reality is that the job market is still fairly strong. Unemployment is just 4.5 percent. But the perception, perhaps more important, is that the job market is weakening in a hurry.
Peter Viles, CNN Financial News, New York.
(END VIDEOTAPE)
FRAZIER: Well, joining us now to lend some expertise, we hope, and some much needed perspective on all of this is Professor Rajeev Dhawan, who's director of the Economic Forecasting Center at Georgia State University and a newcomer to Georgia and to CNN. Thanks for joining us here.
RAJEEV DHAWAN, ECONOMIC FORECASTING CENTER: Thank you.
FRAZIER: Welcome from UCLA. That move from California is going to be rough. Anyway, let's talk for a little bit, I know you couldn't hear all of what Peter Viles was reporting there, but he spent quite a bit of time talking about perception. You look at a lot of numbers on all sorts of obscure movements of goods and services and trends, but that's one that you can't really quantify, the sense of security that consumers may be feeling or not.
DHAWAN: Yes, the pessimism or the feeling of feeling good is a very critical factor right now. If the consumers lose their heart and they become really pessimistic, that's going to spell trouble for the recovery that we expect at the end of the year. And that's a big if. And that also shows up in housing starts, in numbers like automobile sales and stuff like that, what they are spending on.
And now housing starts have been really good until recently, even with all the layoff news. It's because, you know, the layoffs started in the manufacturing sector, they moved over to the telecom, now they're moving to the other side. But in between they come...
FRAZIER: To service, the other side?
DHAWAN: Yes, the services. They're coming off very big highs so it feels pretty bad. Everybody's looking at the stock market and saying oh my god, I lost the money. And at the same time they say what do I do with the rest of the cash I've got? So a lot of people are going into the housing side to buy up as an investment. And that puts the pressure on the demand for new homes, which translates into more housing starts. This is one part of the solution.
FRAZIER: But that's a real development, though? That's not some kind of phony ballooning of the housing market. That's real. They are buying.
DHAWAN: Yes, it's real. But it could also be a little bit kind of like, you know, a change of investment, sometimes, which is not really good, you know? The other thing is that even though the layoffs have happened and the unemployment rate has risen, it has not been that high as what happens in a bad downturn, what we call a recession. Right now we are having like almost no growth, like a growth recession, you know? So the damage has not been done as yet. It will be a little bit more down the road. That's when I expect the housing starts to moderate.
But right now, people look at, say, look, I have the job, I can probably afford to start as house. The interest rates are very low, especially on the mortgage. The Fed has been very proactive in cutting the rates since early January and that gave a boost to the housing market. So in a sense there is doom and gloom around in certain sectors and more so in certain ones, but overall the economy is kind of like, it's in a funk but it's not that bad.
FRAZIER: And real estate has traditionally been the sort of gold standard for investments. If you can hang on there for a long time, it's -- for a long time it was considered a better investment than stocks.
DHAWAN: Yes. It could even turn out to be the same way again. You know, in the last five years you made more money in the stock market than you probably made in real estate, unless you were in Silicon Valley, where you made good money.
FRAZIER: Right. Yes, on your house as well as everything else.
DHAWAN: On your houses, yes. But right now people are thinking, oh, I'm going to live in this place. I do have a job. It pays me well and OK, I lost some money in the stock market so maybe I should invest it over here. And given the low inventory of new housing stock, you know, in the big run-up in the last couple of years, we went through the inventory of new houses very quickly. There was nothing left on the market. And that resulted in home price escalation. So now if people are demanding houses from the perspective that they have the jobs and they want to build some and the interest rate is low, and also because I want to invest in that sector, then that's going to build up the demand. That shows up in housing starts.
However, I expect it to moderate as the next few months go by because it's a bit too high even for a funky economy at this point.
FRAZIER: Right. Right. Well, it's one of those many things I know you watch, including things as odd as how many cardboard boxes get ordered by companies that have to ship a lot. But this is one that seems to be major and concrete.
DHAWAN: Yes. This is a very clear indication of how much spending is going on and it does not imply what's going to happen in the future. But it tells you...
FRAZIER: What's happening now.
DHAWAN: ... that on one side if you look at the industrial production, we are in a recession in that area, clearly. But if you look at the housing starts, it's more than robust. So that puzzle is, to some extent, solved by looking at some fundamental factors. Of course, there's no full solution to these things because we're dealing with human beings and what they do is up to them.
FRAZIER: Right. Well, thanks for helping to sort that out for us. It's a complicated world right now but we're grateful for your insights, Professor Dhawan.
DHAWAN: Thank you.
FRAZIER: Thank you.
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
