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April 20, 2001
News of Layoffs Dominates Media While Economy Shows Signs of Strength
By Rob Gross

The U.S. Department of Commerce, Bureau of Economic Analysis (BEA) released first quarter GDP figures on April 27, showing growth at an annualized rate of 2.0%. Despite the latest headlines showering the public with news of layoffs and bringing rise to fears of recession, the U.S. economy showed its resilience yet again. The "fundamentals of our economy are sound," said U.S. Commerce Secretary Don Evans in a statement accompanying the latest GDP figures.

Consumer confidence has been severely injured recently by relentless news of layoffs and gloom. In the past two weeks alone we've seen headlines reporting mass layoffs by Ericcson, Cisco, Nortel and Hewlet Packard, just to name a few.

"We don't see any improvement in market conditions for the rest of the year," said Kurt Hellstrom, president of Ericsson, as his company announced layoffs of 12,000 worldwide.

"The lack of available funding from the capital markets, high debt levels at many service providers and the compounding effect of the U.S. economic downturn and its impact on other regions will continue to constrain capital spending by service providers." said John Roth, president and CEO of Nortel, in a statement accompanying the announcement of 5,000 layoffs.

And Cisco chief executive John Chambers commented, "This may be the fastest any industry our size has ever decelerated, which has required us to make difficult business decisions at unprecedented speed," as his company announced layoffs of 8,500.

As recently as April 24, consumer confidence, as measured by the Conference Board, fell to a lowly 109.2. This index, which measured at 138 in April 2000, is derived from a monthly survey of 5,000 U.S. households. The survey showed that the number of consumers planning to buy a home, a car, or a major appliance in the next six months all declined in March. Consumers believe the present condition to be at it's worst since 1997 and will continue to decline. It's a vicious economic cycle. The media reports massive layoffs and recession causing consumers to be cautious and hold off buying the new car or replacing the washer/dryer or otherwise fueling the economy. Revenues decline in a self-fulfilling prophecy.

There are several reasons why the bad news can be misleading for consumers. In 1989, The Worker Adjustment and Retraining Notification Act (WARN) went into effect as a protection to workers, their families and the general public. Generally, WARN requires that companies with 100 or more employees announce at least 60 days in advance their intentions of a layoff of 50 or more people. While the intentions of WARN are good the downside, according to a report issued by The Employment Policy Foundation (EPF), shows that companies are more likely to issue public statements about layoff plans, even if the layoff plan is tentative or will be spread out over many months in the future. Frequently, says the EPF report, these layoff plans may take place over several months, frequently include employees who work outside the United States, and often are able to transfer to other jobs within the same company without being unemployed.

While it was widely reported that the unemployment rate continued to grow to it's highest level since September 2000 at 4.3%, this is still a historically low number. It should also be noted that the number of people seeking employment, a much less publicized figure, decreased in March by more than 1%.

And how about the all-but-forgotten 'New Economy.' The news has most notably been at its worst regarding hi-tech and Internet companies…story upon story of dotcom failures. But there are numerous success stories, as well.

Ebay recently reported profits at 79% higher than the same quarter last year. "EBay's momentum continues to accelerate," said Meg Whitman, President and CEO of EBay. "Across all important metrics, we had a great quarter.

AOL Time Warner also reported impressive first-quarter earnings. Revenues came in at $9.1 billion, up about 10 percent over the same period last year. Jerry Levin, Chief Executive Officer, said: "We couldn't be more pleased with AOL Time Warner's performance…Our results met or exceeded all key operating and financial targets."

And Expedia.com, announced that it expects to report revenue for its third fiscal quarter of approximately $110 million, an increase of approximately 88% over the year-earlier quarter and 38% over the second quarter. Said Richard Barton, president and CEO of Expedia. "Our decision in early 2000 to invest in building a robust merchant business and effectively merchandising merchant inventory has paid off more quickly than we anticipated." Expedia.com is expected to release actual third quarter results on April 30, 2001.

There's plenty of good news about our robust New Economy. Sometimes you just have to look for it.

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