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Tue, Nov 26, 2002 - Page 12 News List

Joblessness in US may hurt spending

PERCEPTION IS REALITY People that have heard that someone else has lost a job say that they may be less likely to go on a spending spree over the holiday season


Wanda Hills felt confident enough about the economy last spring to replace her 15-year-old car. Now, with workers losing their jobs around her, she plans to keep Christmas shopping to a minimum. She'll only buy clothes for her children, preferably on sale.

"A lot of people around here have lost jobs at the steel mills," said the 43-year-old waitress as she sifted through marked-down items at a Wal-Mart Stores Inc store in Michigan City, Indiana. "It just makes you kind of nervous."

Confidence surveys in the US and Europe show concerns about job losses are mounting. Retailers such as Home Depot Inc, the world's largest home-improvement chain, and Carrefour SA, Europe's largest retailer, report declining sales. Royal Ahold NV, owner of the Stop & Shop supermarket chain, last week reduced its annual earnings forecast for a second time.

Consumers, who have kept the world economy growing by buying homes and cars, are now witnessing tens of thousands of job cuts announced by such companies as Ford Motor Co, Lucent Technologies Inc, and Deutsche Bank AG. Their concerns may stunt the global recovery: US consumer spending alone accounts for 15 percent of world gross domestic product.

"The big thing for consumers is jobs: not just have I got a job, but do I feel secure in my job," said Paul Donovan, global economist at UBS Warburg in London. "If your wife's cousin in Delaware has just lost theirs, that affects your perception."

At the same time, cost-cutting and layoffs by companies such as EMI Group Plc, the world's third-largest recorded music company, are starting to increase profits, at least in the US.

EMI, which shed 1,900 and closed unprofitable labels, returned to profit in the six months ending Sept. 30 after a loss in the previous period.

Similarly, Rockwell Automation Inc. said this month its fiscal fourth-quarter profit quadrupled to US$49 million after the Milwaukee-based maker of motors, switches and sensors fired workers and cut other costs. The company cut 750 jobs, or 3.2 percent of its workforce, last year.

That suggests that investment could pick up where consumers leave off. The number of new US workers claiming unemployment benefits fell to the lowest in four months, figures last week showed, while the Federal Reserve Bank of Philadelphia's November manufacturing index rose to its highest level since July.

"I don't think the Christmas season is going to be that bad," said Wendell Perkins, who manages US$600 million as senior vice president of Johnson Asset Management in Racine, Wisconsin. "I just don't understand why everybody is so negative about it."

Over the last two years, the number of job-seekers has risen by 2.7 million in the US, according to non-farm payrolls data, and by about 500,000 in the 12 countries sharing the euro, according to EU statistics.

This month, Xerox Corp, the world's largest copier maker, Advanced Micro Devices Inc, the world's second biggest maker of computer chips, and MAN AG, Europe's No. 3 maker of heavy trucks, announced a combined 5,400 job cuts.

"If we have a decline in employment, it'll have an impact on consumption," said Jean-Pierre Hellebuyck, vice chairman of Axa Investment Management in Paris, which oversees about 270 billion euros in global funds. "We see a lot of cost cutting, which is a danger."

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