Wed, Sep 26, 2001 page19

• Jitters hit US business

  American businesses, which have been cutting back as the economy slowed, are now going further and reducing investments as well

  • By Louis Uchitelle / NY TIMES NEWS SERVICE
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  For the the first time in 15 years, the England brothers have decided that their family-owned trucking company, CR England Inc, will not expand its fleet of 2,500 tractor-trailers. "After the terrorism," Dean England said, "nothing will entice us."

  Manpower Inc, the nation's largest supplier of temporary workers, canceled plans to open 40 new offices in response to the attacks on Sept. 11. "We were expecting a short recession -- over by March," said Jeffrey Joerres, the chief executive. "Our new horizon is next September."

  Eastman Chemical, one of the nation's largest suppliers of material for plastics and paint, has not yet experienced a drop in orders, but expansion is delayed. "Any investment that was planned is at the very least postponed," said Earnest Davenport, the chairman.

  

  American business is now freezing investment in new buildings and equipment that contributed so much to the prosperity of the late 1990s. Above is a nearly deserted Manpower Inc office in Hartford, Connecticut on Friday. Manpower has canceled plans for 40 new offices since the attack on the World Trade Center on Sept. 11.

  PHOTO: NY TIMES

  US business, already pulling back as the economy weakened, is now cutting back even more, freezing investment in new buildings and equipment that contributed so much to the prosperity of the late 1990s.

  Analysts are just beginning to notice the cutbacks. In the days after the terrorist attacks, they had focused on consumers, who curtailed spending immediately. Consumers appear to be gradually returning to more normal shopping habits, although they continue to be cautious about big purchases like cars and homes and extra spending on family outings.

  Business, however, has moved in the opposite direction, and its retreat seems to be gaining momentum. The slowdown that hit the nation more than a year ago came mostly from a sharp cutback in business investment, not consumer spending. Now, thousands of companies, simply by waiting or avoiding additional investment, appear to be pushing the economy more deeply into a recession.

  Moreover, as the companies hit hardest -- airlines and aircraft makers, hotels and convention centers, computer manufacturers and car dealers -- lay off tens of thousands of workers, the damage to the economy will spread.

  "In autos, in steel, in electronics, in farm equipment, in airlines -- everywhere -- business executives are too uncertain to go forward," said Nariman Behravesh, chief economist of DRI-WEFA, an economic consulting and forecasting service in Lexington, Massachusetts.

  Among forecasters, there is little doubt that the economy is shrinking. The discussion has switched to how long a recession will last and how steep it will be. Like most of the nation's forecasters, Behravesh has reversed his prediction that the economy would start improving in the second half of the year. Instead, he, like many others, now expects a slump to last at least through spring.

  Uncertainty is overwhelming the economy in ways rarely experienced in the US. David Collander, an economic historian at Middlebury College, says that companies are used to dealing with risks, but that the response to terrorist attacks goes beyond the normal range of economic theory. "The only thing economists and forecasters can do," he said, "is follow along and see what happens."

  Answers wanted

  For the moment, the uncertainty has caused executives to delay investments until they have answers to some difficult questions: Will there be more acts of terrorism? What form will US retaliation take? Will consumers here and abroad adopt a bunker mentality?

  Those concerns were evident in interviews last week with business managers across the country. The reaction, Collander said, is similar to corporate behavior during the Cuban missile crisis in 1963. That crisis and the uncertainty it generated hurt the economy, but the fear that the world was on the brink of nuclear confrontation lasted less than three weeks. The current crisis is open-ended.

  When the uncertainty lifts, or corporate executives learn how to live with it, then the economy may come back stronger than ever, rebounding from the sharp decline in part because Washington is moving aggressively to cut interest rates and to expand federal spending.

  For the moment, however, caution rules, even among companies that expect to benefit from the new atmosphere. Allen Lauer, chief executive at Varian Inc, based in San Mateo, California, has divided the future into short term and long term. For the next three or four months, Lauer says, Varian, which makes instruments and vacuum pumps used in manufacturing high-technology equipment, will be cautious about how much it invests and how many employees it adds.

  Longer term, Lauer said he was counting on "a shot from stepped-up federal spending for weapons." Military contractors are big purchasers of Varian's products.

  Alan Greenspan, the Federal Reserve chairman, was similarly optimistic last Thursday. "For the longer term," he told the Senate Banking Committee, "prospects for continued rapid technological advance and associated faster productivity growth are scarcely diminished."

  A few companies see their operations as immune, even if uncertainty endures. Hospital companies fall into this category. "We will be continuing with a number of major capital expansions" to meet the needs of aging baby boomers, said Harry Anderson, a spokesman for Tenet Health Care, in Santa Barbara, California, which owns or runs 114 hospitals.

  Wal-mart optimism

  Wal-Mart displayed a similar spirit, going ahead with the opening of a new supercenter last week in Union, New Jersey, across the river from Lower Manhattan and within view of the ruins of the World Trade Center.

  "We are sticking with our expansion plans," a Wal-Mart executive said. "Sales have bounced back from last week."

  But Manpower, based in Milwaukee; Eastman Chemical, in Kingsport, Tennessee; and C.R. England, operating out of Salt Lake City, Utah are more representative of the new cautiousness chipping away at the economy.

  So are small thriving companies like Burrelle's Information Services, which clips media references for corporate clients. It was about to expand two offices in Maine, adding to the 780 employees there. "We won't do that now," said Robert Waggoner, the chief executive of the company, which is based in Livingston, New Jersey

  Summarizing conference calls last week with several chief executives, Jerry Jasinowski, the president of the National Association of Manufacturers, said, "The freeze is on new capital investment, hiring and nonessential travel." For most companies, "it is a freeze, not a downsizing," he said. "Because of the emergency nature of the situation, you really want to avoid any new commitment."

  Some companies are facing a more immediate crisis. Airlines, forced to cut back flights until more people are ready to fly again, have announced that they will eliminate 79,000 jobs, almost 12 percent of total employment.

  The ripple effect is much worse, said David Swierenga, chief economist of the Air Transport Association. For every airline job that is lost, six or seven jobs disappear in related industries. These include, he said, "people who work in airports, at travel agencies, for aircraft manufacturers, hotels, resorts, Disneyland-like amusement centers."

  The terrorism has also jolted home builders, whose energetic activities have been, until now, a mainstay of the economy. Although new construction starts on single-family homes fell in August, they are still above the levels a year ago.
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