April 26, 2001

Jobs Pull A Vanishing Act

The latest employment statistics -- 408.000 people filing first-time unemployment claims -- blew past Wall Street's expectations and confirmed that the economic slowdown we are in is only getting worse by the day. This level is nearly 60% greater than the number of claims at their low point of 258,000 exactly one year ago.

The four-week moving average of jobless claims has risen to levels not seen since the post-recession year of 1992. At that time, companies were struggling to recover from the recession. Now, they're struggling to cope with it. And the thousands of layoffs announced in just the past few days by 3M, Siemens, JDS Uniphase, Honeywell, and more indicate that finding or keeping a job is going to get harder.

And it's going to get worse. The Labor Department said its Employment Cost Index, which measures wages and salaries, rose 1.1 percent in the quarter. That's an annual rate of 4.5%, which is well above the current inflation rate of around 3%. In other words, keeping people employed is going to become relatively more and more expensive for companies. With earnings coming under extra scrutiny in today's volatile stock markets, corporations are desperate to find ways to improve their bottom line -- and an easy way to do that is chop payrolls.

So you'll likely see more and more layoffs as time goes on. During the last recession, new unemployment claims stayed above 450,000 for about a year and a half, and peaked at over half a million. The layoffs in the current downturn will surely shatter that record.

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