In Down Economy, Layoffs Are Contagious

RENEE MONTAGNE, host:

It's Morning Edition from NPR News. I'm Renee Montagne. It's official: During the final quarter of last year, America's economy shrank at its fastest pace in over a quarter of a century. The Commerce Department reported this morning that gross domestic product - that's the measure of total goods and services - dived at an annual rate of 3.8 percent. This was a much steeper slide than the GDP took in the third quarter. One tiny bright spot: Analysts had expected an even grimmer number. The decline in the GDP does reflect a deepening recession; consumers and businesses are putting the brakes on spending. The Labor Department, meanwhile, reported figures that show companies are stinting on overtime, and cutting back on benefits. Then there are the layoffs. Layoffs that began in the real-estate and finance sectors are now hitting workers in nearly every field. And even some iconic firms are slashing jobs by the thousands, as NPR's Frank Langfitt reports.

FRANK LANGFITT: In recent weeks, companies unconnected to the roots of this recession have announced big job cuts: nearly 20,000 at Caterpillar; more than 6,000 at Starbucks; and 5,000 at Microsoft. Tyler Cowen is an economics professor at George Mason University in Northern Virginia.

Dr. TYLER COWEN (Chair, Economics, George Mason University): The economy is at a stage where it really is unraveling, but some jobs are being lost simply because other jobs are being lost.

LANGFITT: These companies aren't actually losing money yet, but demand for their services is falling, and so are earnings. Cowen says the firms are getting rid of workers now to prepare for the worst.

Dr. COWEN: A lot of companies want to do what's called recapitalizing, to have a larger stash of cash, because one thing about this downturn is a lot of people are saying it could last at least five years, and whether or not that's true, the idea's out there. So, managers think they really need to have a treasure chest.

LANGFITT: Layoffs at a company like Caterpillar were particularly jarring because the firm has been such a success. The Illinois-based company rode the global boom, selling heavy equipment to countries like China and India. But Cowen says some firms went into this downturn with weaker business plans and now have to adjust.

Dr. COWEN: There's an old saying that the recession reveals what the auditor does not find.

LANGFITT: Take Microsoft; it's been trying to develop new lines of business for years, but it still relies on selling lots of Windows software packages on PCs. Matt Rosoff is an analyst with Directions on Microsoft, an independent research and consulting firm. He says Microsoft expected strong PC sales at the end of last year. Instead?

Mr. MATT ROSOFF (Analyst, Directions on Microsoft): Sales really started to tank in the second half of the quarter.

LANGFITT: Freaked out by the economy, maybe worried about their jobs, most consumers just weren't buying computers, and Rosoff says Microsoft didn't have enough revenue from other products to cushion the blow.

Mr. ROSOFF: They've been trying to diversify, but I don't think they got there fast enough, and they were diversifying precisely because of this scenario.

LANGFITT: Last week, Microsoft announced 5,000 job cuts, including 1,400 immediate layoffs. But Rosoff says the reality is more complicated. Even as Microsoft gets rid of some workers, it will hire others.

Mr. ROSOFF: The announcement of layoffs and the use of the word "layoff" was, in some sense, more meant to please Wall Street and give Wall Street the idea that, yes, Microsoft is aware of expenses, it's doing some things to try and control expenses, rather than a real, necessary, broad layoff.

LANGFITT: But for those losing their jobs each month, unemployment is painfully real. Diane Glasspool(ph) is a laid-off legal assistant. Yesterday, she visited a government employment office in San Francisco.

Ms. DIANE GLASSPOOL: It is a little overwhelming sometimes here, because there are so many people in here at one time looking for work.

LANGFITT: Garrison Grimes(ph) recently lost his job installing home theaters around Nashville. He says the labor market there is tough as well.

Mr. GARRISON GRIMES: It's the old action that we're back to supply and demand now, and they understand that there's more of us out here than there are jobs.

Dr. LAWRENCE F. KATZ (Economics, Harvard University): Layoffs are just the tip of the iceberg.

LANGFITT: That's Lawrence Katz. He's a labor economist at Harvard, and he says people like Glasspool and Grimes face a squeeze. It's not just that they've lost their jobs, but that companies are creating far fewer jobs they can apply for. A couple of years ago, there were one and a half unemployed workers for every job opening. Today, Katz says, it's like this.

Dr. KATZ: Four unemployed workers searching for every job out there, and that's really a dire situation.

LANGFITT: Katz says most companies are too anxious to add new jobs right now. He thinks the only hope for jobs growing soon is direct spending from the federal government. Frank Langfitt, NPR News, Washington. Transcript provided by NPR, Copyright NPR.