/www.bloomberg.com/ By Will Edwards
Washington, Oct. 21 (Bloomberg) -- JDS Uniphase Corp. grew from 1,000 employees in 1998 to 20,000 in three years, becoming the biggest maker of fiber-optic equipment. When orders plunged last year, the company let go more than half its workforce.
JDS President Syrus Madavi says he won't hire again until his industry recovers. When will that be?
``Frankly, you get a lot of different answers,'' Madavi said in an interview. ``Some people say two years, three years, four years.''
While the economy is on the mend from a recession that probably ended at the start of the year, fired workers aren't finding employment. The jobless rate will probably rise to an average of 6 percent in the final three months of 2002, according to the October Blue Chip Economic Indicators consensus forecast. That would be up from September's 5.6 percent rate and match April's level, the highest in eight years.
Telecommunications companies, which helped drive the boom of the last decade, are still eliminating jobs, while sales for many industries aren't rebounding fast enough to require additional workers. So such companies as Delta Air Lines Inc. and Lucent Technologies Inc. are keeping payrolls lean and relying on a more productive labor force to boost profits.
``I doubt we'll see much of a decline in the unemployment rate until late next year,'' said Lyle Gramley, a former Federal Reserve governor who is now a senior economic adviser with Schwab Capital Markets LP.
The U.S. has endured 10 recessions since World War II. Soon after each of the first eight, economic growth produced a decline in unemployment. The longest lag, four months, followed a contraction that began in 1953.
Jobless Recovery
That pattern changed when the jobless rate rose for 18 months following the 1990-1991 recession, as relatively high borrowing costs made it difficult for companies to borrow money and hire workers. That so-called jobless recovery eventually became a record 10-year expansion, during which unemployment fell to a 30- year low of 3.9 percent in April 2000.
The latest recession began in March 2001 and the current rebound is starting out like the last one. Since January, 36,000 jobs have disappeared on top of the 1.6 million lost from March through December last year.
Growth isn't likely to accelerate any time soon, the September index of leading economic indicators showed today. The index, published by the New York-based Conference Board, fell for the fourth month in a row. That hasn't happened since the start of the 1990-91 recession and suggests the recovery will stall through the first quarter of next year.
Growth Forecast
The economy will probably expand 3 percent next year, up from 2.4 percent in 2002, the latest Blue Chip survey showed. That would produce average growth of 1.9 percent during the recession and the two following years, close to the 1.4 percent average annual growth from 1990 through 1992.
``As in the 90-91 recession, there's no indication we're going to see substantial job increases,'' said Heather Boushey, an economist at the Economic Policy Institute in Washington.
The economy started adding jobs in May for the first time in more than a year. Four successive gains averaged just 54,000 a month. Then, in September, 43,000 of those disappeared.
``That's pretty dismal,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York-based consulting firm. Economists say at least 100,000 new jobs are needed every month to sustain a decline in the unemployment rate.
Paring Costs
One reason many companies won't be doing much hiring is that lower-than-expected sales have forced them to pare costs to meet profit estimates.
Companies in Standard & Poor's 500 stock index had an average 16 percent gain in revenue in the final three months of 2000, the last quarter before the recession started, according to Thomson First Call. Since then, they suffered five straight quarters of eroding sales growth before hitting bottom with an average 4 percent revenue decline in the first three months of 2002. That was followed by growth of just 2.4 percent in the second quarter.
Cisco Systems Inc., whose workforce almost doubled to 38,000 from 1999 to 2001, cut 2,000 positions after sales slumped 34 percent during the fiscal year that ended in July 2001. Sales at the largest maker of equipment to link computers, which rose in the next four quarters, may have fallen in the latest three-month period as large corporations pared purchases of network gear.
Focusing on Labor
Unable to boost profits through higher sales, ``companies have to look at the cost side, and one of the key variables there is labor,'' said Tony Villamil, chief executive of Washington Economics Group Inc. and a former undersecretary of commerce for economic affairs under President George H.W. Bush.
Many companies have also trimmed spending on equipment, from computers and software to hydraulic fans and production lines, by more than 10 percent over the past two years, Commerce Department figures show. Cutbacks in investment helped lead to declining factory payrolls and may continue for some time.
Makers of industrial machinery and equipment have eliminated almost 200,000 jobs over the past 12 months, according to Labor Department figures. In the computer industry, a single company, Hewlett-Packard Co., is shedding almost 17,000 jobs following its merger with Compaq Computer Corp. and because customers are waiting longer before upgrading equipment. More than 10,000 of those cuts will be completed by the end of this month.
Motorola, Corning
Telecommunication-equipment companies, such as Motorola Inc., have borne many of the job cuts after demand for products like cell phones, routers and switches fell short of expectations. From Jan. 1 through September, they announced 205,557 job cuts, according to Challenger, Gray & Christmas Inc., which has tracked workforce reductions since 1989.
Some companies spent billions building fiber optic cable networks. Now, less than 5 percent of installed fiber is being used, according to TeleGeography Inc., a communications research company.
Corning Inc., the world's biggest maker of optical fiber and cable, may cut more than the planned 4,400 jobs this year to counter an additional decline in spending by phone companies. Corning eliminated 12,000 positions in 2001.
``They will be able to endure a very significant up tick in business without having to grow rapidly to support it,'' said Chris Nicoll, a telecommunications analyst with market research firm Current Analysis Inc.
Business spending to upgrade equipment last decade has had another effect as the economy cooled: Companies are more efficient and now require fewer workers to produce the same amount of goods or services.
Productivity Gains
Productivity of U.S. workers -- the measure of how much work is performed by one person in an hour -- was 4.8 percent higher in the second quarter than it was in the same three months last year. That was the strongest year-over-year gain since 1983 and came at a time when the economy was growing at just a 1.3 percent annual rate.
Federal Reserve Chairman Alan Greenspan has promoted productivity gains since the mid-1990s as one of the most significant changes in the U.S. economy, boosting corporate profits and living standards.
Improved efficiency has limited the need of companies to take on workers to meet higher demand at the start of the expansion.
``While recoveries fueled by productivity growth auger well for the economy over the long term, in the short term they put inordinate pressure on the unemployed and discouraged workers,'' said Robert McTeer, president of the Dallas Federal Reserve Bank in a speech in Washington last month.