Despite Growth In GNP, Economy Poised to Slide
Layoffs, drop in consumer confidence may signal end of eight-year expansion, experts say. TEETERING ON THE EDGE?
CHICAGO — THE surprising growth in gross national product last quarter isn't fooling anyone. Although the longest peacetime economic expansion in United States history continued through September, that month saw a jump in the number of workers laid off. More layoffs are planned as companies brace for the rough economic weather that is even more widely predicted for the current quarter, after having failed to arrive in the last.
The GNP, the nation's output of goods and services, grew at a 1.8 percent annual rate, up from an 0.4 percent rate in the second quarter, Commerce Department figures show.
The latest GNP number, which was better than expected, will be revised twice as additional data are gathered. Indeed, second quarter GNP growth was initially pegged at a 1.2 percent annual rate.
Despite the latest GNP results, the 95-month expansion may not last much longer. Many economists predict that higher taxes and oil-related costs will result in negative growth for the current quarter and the following one. Two down quarters in a row is an informal definition of a recession.
In addition, although consumer spending rose a strong 3.6 percent in the quarter ending in September, the index of consumer confidence in the economy took its largest-ever one-month dive in October. It now stands at a level last seen in the 1981-82 recession, as measured by the Conference Board, a business research organization in New York.
The Commerce Department considers the consumer confidence index to be a leading indicator of economic activity. When it falls, says the Conference Board's Fabian Linden, ``it usually foreshadows recession.''
The nation's unemployment rate has been on the rise: 5.2 percent in June, 5.5 in July, 5.6 in August, and 5.7 percent in September. The increase to 5.7 percent ``represents a lot of bodies out there, losing their jobs,'' says Harvey Hamel, a senior economist at the Bureau of Labor Statistics. But, ``we had it a whole lot worse in the early '80s.'' Unemployment reached 10.8 percent in November 1982.
One factor easing pressure on the unemployment rate is that ``we haven't had hordes of people coming into the labor force,'' Mr. Hamel says. In particular, the increase in the proportion of women has suddenly slowed. Most of the job growth in the 1980s consisted of women entering the labor force, he says.
The number of people in the layoffs category had been drifting lazily upward through the summer, but shot to 1,127,000 in September, following a one-month rise of 150,000.
``This is the source of [savings] that firms always seem to find very quickly,'' says Mark Shanley, an assistant professor of business policy and organizational behavior at the University of Chicago.
The expected business downturn would be the first since the wave of leveraged buyouts in the 1980s, he notes. The big question is whether the hundreds of companies that participated in mergers and acquisitions, or which defended themselves against hostile takeovers, can service their increased debts as sales slacken.
If they are forced to sell off assets to raise money, ``vulture funds'' being put together on Wall Street are poised to swoop in ``to pick up the pieces,'' Professor Shanley says. ``The one sure way to cut costs is by reducing the number of people.''
The pace of layoffs could accelerate, now that companies' recessionary expectations have been exacerbated by rising oil prices, says Eric Greenberg of the American Management Association.
Mr. Greenberg conducted the AMA's annual ``Downsizing and Outplacement'' survey. The 1,219 companies and nonprofit institutions surveyed reported that:
In the 12 months ending in June, 36 percent cut their staffs. That was down from 39 percent a year earlier.
But the average number of employees losing their jobs was higher at 195, up 16 percent.
Fifty-five percent of the firms and institutions cited an actual or predicted business downturn as the reason they cut staff. Only 43 percent of those that downsized last year cited that reason.
Fifteen percent of the firms plan to cut 8 percent of their work force.
Greenberg emphasizes, however, that twice as many firms wound up reducing their work force as had reported plans to do so in past surveys.
He also stresses that his survey was completed in July, before the Gulf crisis began. Does that mean layoffs will be even more widespread than his survey reports?
``I think that's fair to say,'' Greenberg says. He now estimates that more than 40 percent of companies will have layoffs.
The chance of white-collar workers losing their jobs increased 30 percent in the latest survey, while blue-collar workers had less chance of losing jobs.
Challenger, Gray & Christmas Inc., the nation's oldest outplacement company, also noted this trend. The Chicago firm found that 75 percent of the newly unemployed are in white-collar jobs.
``This is where the higher salaries are. This is where the impact of mergers and acquisitions are felt,'' Greenberg says.