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February 2, 2001

Mass Layoffs, Led by California, Rose 54% in Fourth Quarter
By Patrick Barta, The Wall Street Journal

Just the Beginning ... Weiss comments

NEW YORK - California, birthplace of the high-technology boom that helped carry the nation's economy to new heights, is also setting the national standard for layoffs. But the Midwest, bogged down in a manufacturing slowdown, is catching up quickly.

Those are among the highlights of a report released Thursday by the Department of Labor's Bureau of Labor Statistics on so-called mass layoffs, where companies terminate 50 or more employees at once, and the employees file for unemployment insurance. The report indicated that while mass layoffs started 2000 little changed from a year earlier, layoffs rose 54% for the fourth quarter from a year earlier as a slowing economy prompted big companies to make sharp cuts in their work forces. In the October to December period, there were 5,248 mass-layoff events involving 647,012 workers, compared with 3,943 events and 420,827 workers a year earlier.

For the entire year, there were 15,738 mass-layoff events affecting 1.84 million workers, compared with 14,909 events affecting 1.57 million in 1999. Not surprisingly, the largest percentage of the job cuts occurred in manufacturing, which accounted for 35% of all layoff events and 42% of all workers.

"Virtually everyone has been willing to admit that the manufacturing sector is miserable; the question now is whether that weakness spreads out to other areas of the economy," said Brian Jones, an economist at Salomon Smith Barney.

The distribution of mass layoffs on a state-by-state basis showed some surprising results. Partly as a result of an unfolding energy crisis, declining sales of technology equipment and the dot-com blowout, California reported nearly 155,000 mass layoffs for the fourth quarter, a 14% jump from a year earlier. The state also has seen huge job losses in the motion-picture and agriculture industries, although those industries are seasonal and experience heavy turnover.

But while California saw the largest number of layoffs, other states had much bigger percentage increases in layoffs in the fourth quarter. That includes Ohio, where layoffs jumped 139%, and Michigan, where they rose 133%. Other states with big layoffs included Indiana, Missouri, Pennsylvania and Wisconsin.

Because the BLS measures only mass layoffs, which for the most part involve large companies, the report captures just a subset of the U.S. labor market. Small businesses, which employ far more workers overall than do big businesses and which tend to react more quickly to changes in the economy, are mostly excluded from the study. But economists say the mass-layoff data are nevertheless a valuable indicator. When you see layoffs in big companies, "that suggests that there are clearly layoffs for the small companies, too," said Gerald Cohen, a senior economist at Merrill Lynch & Co.

There is some evidence that layoffs accelerated in January. Just Thursday, the government reported that the number of Americans filing first-time claims for unemployment benefits rose by 32,000 to 346,000 last week, higher than what Wall Street expected.

Unless you're living under a rock, you're well aware that companies are laying off workers in droves. In January, the unemployment rate rose to 4.2%, the highest level since September of 1999.

It's still low on a historical basis, but don't breathe a sigh of relief just yet, though. The employment picture, like the economic picture, is going to get much darker in the coming months. When decimated dot-coms announced layoffs, observers shrugged that off, because the "new economy" was a bubble anyway.

But, these most recent figures show a sharp drop in manufacturing jobs -- and the health of the manufacturing sector impacts the health of the entire economy. For example, when manufacturers such as auto makers cut down on investing in new technology equipment, the tech companies that supply those goods will hit hard times and have to layoff workers.

Plus, as more and more layoffs occur, consumers will be less likely to spend cash. When that happens, retailers and other service sectors will begin their rounds of layoffs. While that hasn't happened to a large extent yet, at the rate consumer confidence in the economy is dropping, it won't be long.

In fact, we've already seen layoffs spreading outside of the auto industry and other manufacturers. Retailers Sears and announced several layoffs and media giant AOL Time Warner is laying off workers as a result of its merger. Even Charles Schwab has asked employees to cut back on work hours so that they can save a few extra bucks. It's going to get a lot worse. GE denies it, but analysts expect to see as much as 75,000 people laid off at GE as a result of the Honeywell merger. That's 75,000 high-paying jobs that will likely be gone...vanished...poof!

The sharp rise in the unemployment rate this month surprised economists. It's not the first time this month that they've been caught off-guard. They weren't ready for the plunge in consumer confidence, the huge downturn in business investment, the "close to zero" growth in GDP, or the big drop in the NAPM index. And they'll probably be surprised again next month when growth in GDP turns negative and the economy enters a recession.

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