THE DECELERATION OF 2001: Strategies for a Slowing Economy.(effects of U.S economy on business)(Statistical Data Included)

Publication: USA Today (Magazine)

Publication Date: 01-JUL-01

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COPYRIGHT 2001 Society for the Advancement of Education

As sales and profits plummet, it's time to get back to basics.

SINCE THE STROKE of midnight on Jan. 1, 2001, U.S. equity markets have shed approximately four trillion dollars in value. Driving this decline is one of the swiftest, sharpest decelerations in economic growth ever experienced.

So much for the tamed "soft landing" most economists once expected. Despite dramatic ministrations by the Federal Reserve System, larger issues have been casting a shadow over the once-ebullient economy. What started out as an inventory correction in durable goods industries (beginning with automobiles) has quickly spilled over into the larger economy.

So, what happens next? A quick review of recent economic history can supply more than a few clues. Since 1980, for example, them have been seven years during which real economic growth slumped below three percent (1980-82, 1990-91, 1993, 1995). In those years, inflation-adjusted Gross Domestic Product grew an anemic one percent on average. Corporate earnings declined by 1.2%, and the Standard & Poor's 500 delivered negative returns four out of 10 months during each of those years.

So far, the Deceleration of 2001 fits this pattern. First-quarter earnings uniformly--and in some cases overwhelmingly--disappointed investors. Economic growth has slowed to less than one percent. Meanwhile, the S&P 500, which, from 1992 to its high in August 2000, rose two out of three months, has declined virtually every month since then. Now, let's suppose you're the boss. What do you do?

During past slowdowns, layoffs were widely employed to bring corporate spending under control. In the last recession (1990-91), more than 25% of all firms cut their workforce by five percent or more, a device eventually so popular that Newsweek noted, "Firing people has gotten to be trendy in corporate America in the same way building new plants and [good corporate citizenship] gave you bragging rights 25 years ago."

Over 200,000 layoffs were announced in January, 2001, more than four times the number announced just three months earlier. Mark Zandi, chief economist at Economy.com, commented that "I can't find a period where we've seen that kind of change in such a short time."

In any case, it seems to...

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