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For Many Firms, Jobless Recovery Is a Good Thing

U.S. employers are in no hurry to resume hiring as increased productivity cuts their need for workers.

November 13, 2003|David Streitfeld | Times Staff Writer

The economy roared last quarter, and so did Falcon Plastics Inc.

A family-owned firm in the eastern South Dakota city of Brookings, Falcon posted record sales in September. Yet there's no impulse to celebrate, no rush to hire. The bad times are still too vivid.

"We want to make sure that when we add someone, we won't have to turn around in three months and let them go," Falcon President Jay Bender said.

Multiply Falcon's situation by tens of thousands of other companies, and a picture begins to develop of an economy climbing a wall of worry.

On Friday, the Labor Department announced that employers added a net 126,000 payroll jobs in October. In all, the economy has added 286,000 positions over the last three months -- the best showing since early 2001.

But 2.4 million more jobs would be needed to regain all the ground lost since March 2001, when the last recession began. When, or even if, those positions will come back is far from clear.

Here's the problem: Many companies like the notion of a jobless recovery. The leaner they can keep their U.S. payrolls -- by using overtime, automating the production process and outsourcing jobs overseas -- the higher their profits.

The murky hiring picture affects not only the 8.8 million unemployed but the 1.6 million who want a job but aren't actively looking for work. It affects millions more who want a full-time job but must get by with part-time work. And it weighs on the more than 130 million employed.

"The greatest single concern people appear to have about the economy is jobs," investment house Fred Alger Management Inc. said in its November market review. "We have companies and an economy that can shift gears quickly, but not the kind of job creation and job security that people understandably seek."

For Falcon, as for many companies, the 2001 downturn was swift and harsh. Annual sales tumbled from $20 million to $14 million. The 305 employees shrank to 175. "Sometimes," Bender said, "you have to cut off your arm to save your life."

The emergency surgery was a success. For the fiscal year that ends in April, Falcon expects again to hit sales of $20 million. But the payroll is back to only 200 workers. Any further growth, Bender said, "will be incremental. We're still very cautious."

So, too, are consumers. Although the economy expanded during the third quarter at its fastest rate in 19 years, people's confidence in the future remains "middling," noted Richard Curtin, who directs the University of Michigan's monthly consumer survey. The tenuous job situation is a big reason.

"It used to be understood that when business weakened, layoffs went up. When it improved, people were called back to do the same jobs at the same employers," Curtin said. "Now, if people lose their jobs, they have to find new skills and a new job at a new employer. It's a more daunting challenge."

It's one that many stand to face, even as the economy picks up steam. The job placement firm of Challenger, Gray & Christmas reported that planned layoffs at U.S. firms were 171,874 in October, more than double September's total and the highest in a year.

Duke Energy Co. said it would eliminate 8% of its global workforce, or 2,000 jobs. Sony Corp. will cut several thousand U.S. jobs as part of a major restructuring. Tyco International Ltd. said it would do away with 7,200 jobs, or 3% of its labor force.

In some cases, the cuts were accompanied by solid earnings reports. Boise Cascade Corp. said sales increased 9% in the third quarter and profit nearly quadrupled. But the wood products firm is continuing layoffs, which have reduced the number of employees by 460 this year and will lop off an additional 90 during the fourth quarter.

Electronic Data Systems Corp. fulfilled Wall Street's expectations for the third quarter, but the computer services company nonetheless announced it would cut an additional 2,500 jobs in its third layoff in a year.

One major company going against the trend is IBM Corp., whose chairman, Samuel J. Palmisano, says he foresees the need in 2004 "for approximately 10,000 new positions in key skill areas." IBM has 315,000 employees, roughly the same number it had when the boom peaked in 2000.

However, fewer than half its workers are in the U.S., and Palmisano didn't specify where the hiring would take place. Alliance@IBM, a union representing workers at the technology company, said the announcement was a "smokescreen" for the fact that many IBM jobs were being transferred overseas, where they would be filled by Indian or Chinese software engineers.

For its part, the Bush administration suggests that the employment picture is bound to improve next year as the economy continues to strengthen. And there are some promising signs. First-time unemployment claims unexpectedly dropped last week to their lowest level since early 2001. Although initial claims often are revised upward, economists were heartened by the report, saying it could be further evidence that the drought in jobs was coming to an end.

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