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RAY SUAREZ: The jump in unemployment comes as no surprise to thousands of workers who got pink slips in the last month. There have been widespread layoffs at some of the brightest lights in corporate America. At Daimler Chrysler, 26,000 jobs– 1/5 of the company’s worldwide workforce– will be eliminated. At Amazon.com, 1,300 will be laid off. And at General Electric, the management announced significant cuts were likely. The layoffs are occurring throughout the economy; in the industrial, so-called old economy companies, like Xerox and Sara Lee, at new economy tech firms, including chipmaker Motorola and telecom giant Lucent, and in service sector companies such as AETNA, J.C. Penney, and Montgomery Ward, which is shutting its doors.
The layoffs and the climb in the jobless rate are further signs that the US economy, now in its record ninth year of expansion, is slowing down. The Gross Domestic Product, the broadest measure of the economy, is growing at its lowest rate in five years. Consumer confidence numbers have declined for four straight months. Manufacturing activity is at its lowest level since 1991. In early January, in a surprise move, the Federal Reserve tried to jumpstart the economy by making it cheaper for consumers and businesses to borrow. Again on Wednesday, the Fed cut short-term interest rates further, bringing a key rate down to 5 percent. In a written statement, the Fed noted consumer and business confidence has eroded further, exacerbated by rising energy costs that continue to drain consumer purchasing power and press on business profit margins, these circumstances have called for a rapid and forceful response of monetary policy. Last week on Capitol Hill, Fed Chairman Alan Greenspan issued this warning.
ALAN GREENSPAN: As far as we can judge, we have had a very dramatic slowing down, and indeed we are probably very close to zero at this particular moment.
RAY SUAREZ: Greenspan said the critical issue going forward is whether the slowdown curtails consumer spending, which makes up two thirds of the economy.
RAY SUAREZ: Four labor economists help us sift through the positive and negative signs for the workforce. Kate Bronfenbrenner is direct director of research at Cornell University. Patrick Mason is professor of economics and director of the African-American studies program at Florida State University; Morton Marcus is director of the Indiana business research center and economist at the Kelley School of Business at Indiana University; and Jack Kyser is chief economist at the Los Angeles County Economic Development Corporation, a non-profit organization that focuses on growing the Los Angeles economy.
RAY SUAREZ: Morton Marcus, when you look at the numbers, what are they telling you?
MORTON MARCUS: I think, Ray, it’s a little difficult to tell what these numbers are saying. You have to remember that at the same time the Labor Department is saying that unemployment increased by 300,000, they’re also telling us that we have considerable growth in the number of jobs, and most important, they’re telling us the labor force has grown by 466,000 persons. Now what they’ve got is a problem is that they don’t really have clear view of how many jobs have growing and they’re giving us two separate reports. We have a slowing in the economy. We have a clear situation where unemployment is hitting manufacturing employers, particularly here in the Midwest. We’ve lost about 55,000 jobs in manufacturing over the last year. And it probably is even more by now because our figures are just December. But what this is telling us is that we have a very uncertain picture as to what’s going on. But the news media and the Labor Department jump on the easiest number and that is to say that unemployment is rising. The pictures you show are of people possibly being laid off, for example, at Daimler Chrysler is supposed to take place at retirement. That doesn’t necessarily mean that those people are going to be unemployed. So I think we have to hold back on making the kind of dramatic judgment that seems to be coming out now that there is some kind of crisis situation taking place.
RAY SUAREZ: Well, Kate Bronfenbrenner, would you add other numbers just to the raw unemployment number to help us understand what is going on in the workplace?
KATE BRONFENBRENNER: I that it’s the consumer confidence number that is so important. Why is it that the consumer confidence dropped quickly and why is it that the slight drop in the unemployment has really sent a wave of terror in a lot of workers – and I think we have to see that the confidence was very short lived. We had an economic expansion for a decade, but workers’ wages didn’t start to go up until the end of the decade. That’s because they were afraid — they didn’t want to quite believe – that if they asked for a wage increase they might lose their jobs. And I think as soon as they see on the horizon that their jobs are once again very insecure, their fear is much greater than it might have been otherwise.
RAY SUAREZ: Jack Kyser, is this a regional phenomenon, or are there some places in the country where workers are not even expecting a recession around the corner?
JACK KYSER: Oh, no, I think you’re seeing a lot of uncertainty even in California, the western states. Of course, the California situation is a little bit different because things have been sort of turned upside down by the energy crisis. That looks like it’s sort of starting to come to a conclusion. But just this morning I was talking to somebody who deals with the minority community — and there is just a lot of concern there about what is going on. Are we going to have a job in one month, two months, three months? We’ve got our fingers crossed but right now we don’t have any firm measures about what is really happening in California and the West. Our numbers lag the national numbers so we have our fingers crossed.
RAY SUAREZ: Do your numbers lag the national numbers in part because the recovery started a little later? Are you somewhere different in the business cycle?
JACK KYSER: No. What happens is that our unemployment rate normally is announced about a week after the national rate. But the month of January, what you get is revisions to the past two years’ data. So we won’t have an unemployment rate for California in the metro areas until February 23. A lot of people point out that we did lag going into the national recovery. Right now we’re doing a lot better than the nation, at least through December. Those are the numbers that we have right now.
RAY SUAREZ: Patrick Mason, when you look at the latest statistics, what do you see?
PATRICK MASON: Well, I’m quite worried that the recent increase in the national unemployment numbers may have even greater problems for African Americans and other minorities. Generally speaking, the African American unemployment rate is twice the national unemployment rate. So I haven’t seen the latest figures, but if the pattern holds, we’re probably looking at better than 8 percent unemployment among African Americans, which is a pretty high rate of unemployment; it’s a recession rate of unemployment. So that even during this time period where the national unemployment rate has been quite low, it has remained high among African Americans. And I’m worried that if the numbers continue to rise nationally, that that number may go up even more.
RAY SUAREZ: Well, how does that translate to what is going on down at street level — when in the course of one month, the national unemployment number goes up 0.2 percent and goes up as it did in this month 0.8 percent for black workers — what does that mean at the factory level, down at the department store level?
PATRICK MASON: Well, what that means is that workers have lost jobs. And with the decline in those jobs, they’ve lost income, they make fewer purchases, so that those households are less well off, and it also means that the businesses where they would have spent their money are also less well off. And if the unemployment is heavily concentrated in particular communities, it means that those communities as a whole are worse off. And with the rise in unemployment we may get an exacerbation in inequality, which has been a very big problem for the last — at least since the early 80s.
RAY SUAREZ: Kate Bronfenbrenner, maybe we can talk a little bit about the underlying psychology that you discussed earlier. Morton Marcus mentioned there was very robust job creation, even as the unemployment rate was going up. The job losses weren’t all that different from the same time a year ago. Is it because it’s happening in a different backdrop that workers think differently about what’s going on in the wider market?
KATE BRONFENBRENNER: Part of it, the job losses have been in really good jobs, in steel, auto, good union jobs with good benefits. And many of these are older workers with families and homes and college payments and car payments. So the loss of the job is much more devastating not only to them but to their families and the communities they’re in because they were counting on their income and purchasing power. But it’s also, for workers today they live really in a shifting workplace. They never know when they wake up in the next morning whether the company is going to merge; it’s going to be bought by someone else, or the work is going to be contracted out. So there is a general uneasiness. And, strangely enough, in the last ten years polling has consistently showed that workers were unsure about what their economic future was going to be even when the most robust numbers were coming out. So I think this just adds fuel to the uncertainty that has been there all along.
RAY SUAREZ: Morton Marcus, if someone loses a job at say LTV Steel, which recently announced layoffs in the Great Lakes area, are they slower to get a new job than somebody who loses a job in the Bay area, in an information technology related job?
MORTON MARCUS: Of course, it depends on the kind of job that they’ve been holding and how old they are and as well as their willingness to relocate. In general in the Midwest we’ve had a very strong job market but the kinds of people who lose jobs where they’ve held a position at a steel mill for 20 or 30 years are clearly going to be more narrowly confined. But I think we have to stick to this point of how people perceive what’s going on, including how Alan Greenspan perceives what is going on. And, again, we have a situation of are the networks calling a recession before the returns are in? I think we ought to be dealing with the facts that we have in place. And the facts that we have in place is that manufacturing is slowing down and some of the dot-coms are having trouble and some large firms are making another kind of move, which is a long-term move of cutting part of their labor force, restructuring their position. And let’s not try to confuse the long-term and the short-term.
RAY SUAREZ: Well, when you pick out different sectors, I guess if I want to sound like an economist, disaggregate, can you really do that, just have a two-track labor force where manufacturing can be hurt and have no other effect in other sectors of the economy?
MORTON MARCUS: You’re right that if manufacturing is being hurt, it does have an effect on other parts of the economy. But it doesn’t have a disastrous effect that it allows CNN to describe the situation as having thousands of people marching the streets looking for jobs. I don’t think that’s the case. And I think that the unemployment figures that are out today, which are subject to revision next month, have to be taken rather cautiously. They are very explosive kinds of figures and I’m not sure that we can depend on them.
RAY SUAREZ: Jack Kyser, do you want to join your colleague in putting up a stop sign for calling a recession?
JACK KYSER: You have to be very, very careful. You can make a case that there is probably not going to be any growth in the first quarter of this year. We’ve cranked our model a couple of three times. But then you have to also look at what’s coming down the road. We think that the Federal Reserve will make another interest rate cut, hopefully by the next Open Market Committee meeting in March. But also we think that probably are going to get a lot of push for a tax cut coming out of Washington, DC. Hopefully they make it retroactive because that’s going to be the thing that sort of solidifies consumer confidence. And, believe me, consumers are a little bit concerned. Yes the "R" word is being tossed around probably a little bit too freely.
RAY SUAREZ: Patrick Mason, what do you think?
PATRICK MASON: Well, we have observed a slowdown in economic growth. And, in fact, the chairman of the Federal Reserve says that the current growth rate is probably around zero — and some small increase in the unemployment rate. It may be a bit premature to say that we’re in a recession at this point. But certainly if things continue the way they have been headed, we might be headed into a recession. But even then, it’s really difficult to say, if in fact a recession occurs, it is difficult to say how extensive it will be, and for how long it will last. In fact, typical recessions last about nine months. So it’s entirely possible we could be in one and out of it before we’re fully sure of the scale of it.
RAY SUAREZ: Now, the last time this happened, Patrick Mason, it was referred to widely as a breather this would be the first half of 1995. And then things sort of found their feet again and we got five years of very strong economic growth. Why do you think this one isn’t being referred to as a breather? Many of the indicators underlying are about the same.
PATRICK MASON: I’m not sure why this one isn’t being referred to as a breather. At this point in time, we’ve had a slowdown in growth. Even at 4.2 percent, that is rather a good unemployment rate compared to what we experienced throughout much of the 70s and 80s. So that a breather might be a very accurate description. I mean, we’ll have a better idea of that in a few months as we have more data to look at.
RAY SUAREZ: Kate Bronfenbrenner, what do you want to see before you make any decisions about the coming quarters?
KATE BRONFENBRENNER: Well, I think we want to see what the Fed keeps doing. They waited too long to cut interest rates because there seems to be this kind of value judgment made that we have much more to fear from slightly rising wages than we do have from rising unemployment. And I think that how they respond, how they move to try to start bringing unemployment down would be very important. And how — whether consumers start to believe again that their jobs are going to be real, that’s going to be the big question. I think that we as a society have to think about when we make choices that we see a 1 percent increase in wages as a greater disaster than an increase in unemployment.
RAY SUAREZ: Well, a lot of the other numbers that came out, hourly wages, stayed right about where they were. A lot of the other indicators, hours worked per week, stayed very strong as well. Can we be just treading water?
KATE BRONFENBRENNER: I think that treading water is hard when people are scared. I think people’s fear may push us in a direction. I think the question will come how do workers respond? Do they start being afraid to ask for wage increases? Do they start being afraid to move to better jobs? And what kind of jobs do the laid off workers find? The jobs that are out there, the growth jobs, are not in the kind of jobs that give good benefits, that provide pensions and health care and that you can support a family. And that’s what’s so scary for so many of these workers. They don’t want to go become home health aids and janitors and food service workers.
RAY SUAREZ: Jack Kyser, what do you want to look at, pointing the way to the future?
JACK KYSER: Well, I think you definitely watch what the Consumer Confidence Index will say. The other thing people have to recognize is the Federal Reserve probably has about one of the best real-time handles on what’s going on in the economy, and they may make some additional dramatic moves. One thing of course, people forget. You’ve had sort of the tech meltdown. It has had an impact on the stock markets, the reverse wealth effect; that’s got a lot of people spooked about how do we deal with this.
RAY SUAREZ: So, how long will it take before we can figure out the real direction of the labor force and the overall economy — another quarter, another two quarters?
JACK KYSER: I think you’re probably looking at another quarter before you really get a good handle. We’re in the situation now where they are revising a lot of the data sets on employment. We will know February 23, sort of the first impact of the energy crisis in California. But it is going to take us another quarter to get a real fix on things. One thing that we do look at is international trade flows through Los Angeles. And one thing that concerns us is that import activity is slowing, but also export activity is slowing. And I think we also have to watch what’s going on in Japan because some people are saying that’s about ready to melt down again.
RAY SUAREZ: Guests thank you all very much.