Analysts weighing layoff news against hopes of recovery

By John Christoffersen
Associated Press

STAMFORD, Conn. — Energy prices plummet, interest rates are slashed and excess inventories sold. Investors return to the stock market and a growing number of economists say a recovery is around the corner.

Then three major companies from different sectors of the economy announce nearly 20,000 layoffs within 24 hours.

As employees at Aetna, American Express and Qwest Communications International learned last week, signs of a recovery often have painful detours.

"The recession is still rolling," said John Challenger, chief executive officer of Challenger, Gray & Christmas, an international outplacement firm based in Chicago. "It helps bring a dose of reality into that optimism."

While many economists predict a recovery from the recession next year, they also say layoffs are likely to continue for some time. As in the last recession a decade ago, the job market typically lags behind a recovery.

But several economists said they expect the size of the job losses to steadily decline as the economy picks up steam.

"I think the rationale for mass layoffs going forward is diminishing rapidly because of all the adjustments we've already made in 2001," said Steven Wieting, senior economist with Salomon Smith Barney in New York.

On Dec. 12, American Express said it would cut between 5,500 and 6,500 jobs, incurring fourth-quarter charges of $240 million to $280 million, and warned its earnings in the current quarter would fall below Wall Street expectations. The cuts are in addition to 7,700 previously announced layoffs, for a total work force reduction of about 15 percent.

American Express said it had been hit hard by a drop in travel after the Sept. 11 terrorist attacks.

A day later, Qwest said it would cut 7,000 jobs — in addition to 4,000 layoffs announced in September — and also warned its revenues this year and next would be lower than expected. Qwest's cuts amount to a reduction of about 17 percent.

The same day, Aetna announced it was slashing 6,000 jobs, about 16 percent of its work force, and taking a fourth-quarter charge of $125 million related to severance and associated costs. A year earlier, Aetna cut 5,000 positions less than a week after selling its financial services and international businesses to Dutch conglomerate ING Group Inc.

Although companies announced layoffs throughout the year, job losses intensified after the Sept. 11 attacks.

The nation's unemployment rate shot up to 5.7 percent in November as the job loss total for the past two months hit 800,000 — the worst performance in more than two decades. The Labor Department report showed just how devastating the attacks were, with airlines and other travel-related industries particularly hard-hit.

Retail may be the next sector of the economy to take a hit, Challenger said, as consumers continue to be selective in their shopping despite heavy discounting and incentives.

Some economists are less pessimistic, saying layoffs are to be expected in the depths of a recession. They also say some companies announce layoffs at the end of the fiscal year, taking a charge to offset tax liabilities and start a new year with the hope of restoring growth and profits.

Last week's layoff announcements do not offer enough evidence to conclude the economy is heading for further trouble, said Bill Cheney, chief economist with John Hancock Financial Services in Boston.

"Right now, I would think it's a bit of a year-end effect," Cheney said.

Layoff announcements may also sound more dire than they are. Some companies announce major layoffs to prove to Wall Street that they are cutting expenses, but the job reductions are not immediate and another division of the same company may be hiring, economists said.

Still, persistent layoffs can take a toll on consumer confidence, which in turn can lead to less spending and more trouble for the economy, said Mark Zandi, chief economist with Economy.com in West Chester, Pa.

"One of the key risks is the possibility that these layoffs will just completely undermine confidence," Zandi said.