BY EVA CHENG
Companies in the US planned to lay off 205,975 workers in July, 65% more than in June. These new cuts bring the total US job losses so far this year to nearly a million, three times those over the same period last year.
Such cuts are the deepest since the recession of the early 1990s and threaten to drag the US economy, which has already slowed sharply since the end of last year, to a complete halt.
The layoffs took place as, in June, the US experienced its ninth straight month of falling industrial output, the most persistent decline in two decades.
The overall US economy grew in the second quarter by a modest annualised rate of 0.7%, according to the latest official estimates.
But that figure isn't yet final and could still be revised downwards. First quarter growth, for example, was revised in July to 1.3%, or 0.7% less than the first provisional figure. Last year's growth was also revised from 5% to 4.1%. An August 7 revision brought the average US productivity growth between 1996-2000 down to 2.5% from the 2.8% previously reported.
Anirvan Banerji, head of research at the New York-based Economic Cycle Research Institute, said in late July "If they revise this latest quarter's growth rate down by as much as they did for the first quarter ... then it would end up showing zero growth".
According to conventional definitions, an economy is in recession if it contracts for two straight quarters. The US economy isn't there yet, based on current estimates, but Banerji said it was already "pretty much a recessionary reading".
"Things slowed on a pretty pervasive basis", he added. "Consumption growth slowed and industry weakened dramatically more than people had expected, and the third quarter is hardly likely to be any better".
Meanwhile, the National Bureau of Economic Research — the official monitor of US business cycles — believes that the US may have hit its first recession in a decade.
The bureau has no plan to issue a formal declaration, even if it is justified, until 2002. The March 1991 trough was officially declared only on December 22, 1992 and the November 1982 trough on July 8, 1983.
Job threat
Consumer spending, which accounted for 69% of US demand and of which workers' consumption constituted the bulk, has already become the only source of growth in the US economy. If it is dealt a further blow, as severe job cuts are threatening to do, the US economy could plunge firmly into a recession.
Corporate investment, which contributed 13% to total US demand, plunged nearly 14% in the second quarter. Consumer spending in that quarter still grew by 2.1%, impressive compared to the 0.7% increase of the general economy. However, even this symbolic overall growth wouldn't have been achieved without the 5.5% rise in government spending that quarter, which accounted for 18% of the US economy.
The telecommunications sector, with a plan to lay off 44,908 in July, was the most vicious job buster that month, bringing the sector's job losses since January to 175,350.
The technology sector also bled heavily, with 26,321 jobs going in July, bringing its half year total reduction to 101,044. The manufacturing sector axed 49,000 positions last month, bringing the sector's job loss in the past year to 837,000.
Within the manufacturing sector in July, 24,000 of the jobs eliminated came from electrical equipment companies and 21,000 from industrial machinery firms, both of which are the key producers of high-tech equipment.
The high-tech firms' current desperation to slash and burn jobs is testimony to the nature of the sector's blind explosive growth during the "new economy mania" of the late 1990s, which far exceeded the real needs of the "brick-and-mortar" economy.
The chickens are now coming home to roost. On August 7, Cisco Systems, the world's most valuable company until about a year ago, said it would cut 8500 workers. Last month, telecommunications equipment giant Lucent sought to get rid of up to 20,000 positions in one hit, while fibre-optic component supplier JDS Uniphase planned to cut 7000 jobs.
In June, Solectron, a high-tech electronics manufacturer, aimed to slash 12,600 workers off its payroll in one go, while Nortel Networks sought to sack 10,000.
Elsewhere in the "new economy" sector, the layoff plans in the last two months included: 6000 by Hewlett-Packard (computer and printer maker); 3000 by Avaya (communications equipment maker); 2500 by French telecommunications equipment maker Alcatel (for its US operation); 2500 by ADC (telecommunications manufacturing); 2000 by Webvan (online grocer); 1500 by Compaq Computer; 1400 by Level 3 Communications; 1000 by Ingram Micro (the world's largest microcomputer producer); and 1000 by Corning (the world's largest fibre-optic cable maker).
But the sackings aren't confined to the "new economy".
Service companies, whose demand had been boosted significantly by the artificial growth of the "new economy" companies, were also compelled to shrink drastically.
Over the last two months alone, American Express has sought to slash up to 5000 jobs, Merrill Lynch 3300, Air Canada 4000, International Paper 3000, accountancy firm Cap Gemini Ernst and Young 2700, Weiner's Stores 2700, publisher and broadcaster Tribune Co 1500, Reuters 1100, Northwest Airlines 1500, insurance firm Safeco 1200 and Coca-Cola 2000.
Long suffering from excess capacity, the manufacturing sector is in an even more dire state. US factory usage in May was only 77.4% of capacity, the lowest since August 1983. (Capacity utilisation among high-tech firms was 70.3%, the lowest in 25 years.)
Measured by the Purchasing Managers' Index (PMI), the sector's activity from January to June amounted to an average of 42.7% (with anything below 50% representing a contraction). According to the National Association of Purchasing Managers, based on past relationships between the PMI and the overall economy, this corresponds to zero growth in real GDP.
Profits plunge
When the economy stalls, capitalists routinely slash jobs to protect their profits.
In the year ending July, Cisco Systems lost US$1.01 billion (compared to a profit of US$2.67 billion the previous year). Lucent, in the three months to March, registered an operating loss of US$3.7 billion (compared to a profit of US$755 million during the same period last year). American Express, as of mid-July, suffered a pre-tax loss of more than US$1 billion, which was more than a third of its net income last year.
In all, average earnings per share of the companies in the Standard and Poor's 500 super club went down by 17.2% in the June quarter, the worst showing since 1991. In early July, the club's September-quarter earnings were expected to drop 6.2%, but by late July, that anticipated drop was revised to 11.5%.
More hard times seem to be ahead, with more than 200 of these companies having issued "earnings warnings" in the current quarter. The prospects for smaller firms are even more grim.
Banks and other creditors, which traditionally provide the lubricant — credit — to smooth out the production cycles, are likely to be the next ones in trouble.
In the past three years in the US and Europe alone, they've thrown more than US$630 billion at new economy companies, many of which now have a dubious ability to honour their debts. In the first half of this year, telecommunications companies alone have defaulted on US$14 billion in bonds.
Given these institutions' central role in the capitalist credit system, their losses will be transmitted to the wider economy, hitting the "healthier" productive activities as well. Banks' reluctance to extend new credit combined with poor earnings will drive capitalists big and small to halt new investment and savagely cut costs. Jobs are the top on the hit list.
US official unemployment has already climbed to 4.6% in July from 3.9% last September. But real joblessness is higher because many unemployed had simply given up looking for work. The US participation rate, measuring the number of people hunting for a job, was at its lowest in five years during June.
To protect their profit rates, banks have also pushed loans onto consumers to allow them to spend beyond their means. Outstanding consumer debt in the US last month hit a record high of US$1.6 trillion, on top of US$5.2 trillion in mortgage debt (US GDP totals US$10 trillion).
This debt surge helped push the US "savings ratio" (savings as a percentage of personal income) from an average 9% during the 1970s and 1980s to -1.3% in June.
Layoffs are also increasing in Europe and elsewhere, partly as a result of the problems in the US.
In April, Anglo-Dutch company Unilever sacked 8000, French appliance maker Moulinex-Brandt shed 4000 and Swedish telecommunications company Ericsson cut 12,000.
In May, China Petroleum and Chemical announced it planned to cut 27,000 this year and 100,000 jobs over the next five years, while Isuzu of Japan axed 9700 positions. In June, Deutsche Bahn AG sacked 6000 and DaimlerChrysler shed 1120.
Then in July, ABB, a Swiss-Swedish conglomerate, cut 12,000 jobs, Britain's Marconi fired 4000, Infineon of Germany shed 5000, and Siemens, also of Germany, laid off 2000.
On August 9, the Australian Bureau of Statistics announced that the country has lost nearly 150,000 full-time jobs since March, including 79,200 last month.
Many US companies have even gone for a second round of mass sackings, within months of the first. JDS Uniphase wanted to sack another 7000 workers in July, after having already sacked 9000 earlier this year. Lucent, Alcatel and ADC have also executed mass sackings more than once.
Banerji of the Economic Cycle Research Institute has summed up the current global slowdown: "We are heading into the first synchronous global recession in a quarter of a century ... US companies in trouble at home normally would find some region in the world that will produce growth, but this time there is no place to hide. That's why companies will continue to lay off workers."