Friday’s newspapers, for instance, carried stories about more than 30,000 technology workers getting fired–forget the word “layoffs”; we’re talking firings. Yech. And an astounding $45 billion write-off by JDS Uniphase, a onetime high flier now fallen to earth. JDSU, whose stock is down around 95 percent from its peak, has decided that companies it bought are worth $45 billion less than it paid for them.
Earlier in the week there was yet another huge round of firings at Lucent Technologies, once touted as a premier supplier to Internet and telecommunications companies, now a corporate cripple fighting for its life. And day after day you see corporate chieftains who six months ago talked about a recovery coming in six months telling us they have “no visibility.” That’s corporatespeak for “We have no clue when business will pick up.”
The only bright spot in the economy, it seems, has been consumer spending. And logic suggests that can’t continue, because workers should be worried about losing their jobs. And because the huge stock-market drop in the past 16 months has led to such a decline in Americans’ net worth that they should be throwing away their credit cards any second and heading for the financial storm cellars.
So why haven’t I joined the sackcloth-and-ashes crowd? For the same reason you didn’t see me in the “endless boom” crowd back when the myth of eternal growth took hold in the late 1990s. Repeat after me: nothing goes in a straight line forever. About the time that things seem all-wonderful or all-terrible, they’re probably about to change.
I’m not foolish–or arrogant–enough to predict exactly when the upswing will be visible and good times will be rolling across America again. If I knew that, I wouldn’t be working for a living, I’d be a rich retiree. But my gut–supported by a few numbers–is telling me that the worst is probably past us.
For starters, we’re not even in an official recession–two straight calendar quarters in which the gross domestic output (adjusted for inflation) declines. The economy still seems to be growing, albeit feebly. To steal a line, we’re probably in a “growth recession.” That’s when it feels like you’re in a recession even though the economy is still growing. Dropping to 1 percent growth from 5 percent is so draggy that it feels like a recession even if it isn’t.
Second, much of the pain is concentrated in the tech and telecom businesses and in companies like Cisco, Lucent and JDSU that sell to them. Businesses that financed these folks are hurting, too. As are the media outlets where they used to advertise heavily. Not long ago tech and telecom got a disproportionate part of the pleasure. Their late-’90s boom overshadowed the pain in much of the rest of the economy. Now their pain is overshadowing decent performance in much of the economy, such as banking, housing, consumer goods and pharmaceuticals.
And I seem to remember that when Federal Reserve Board chairman Alan Greenspan started cutting short-term rates in January, the conventional wisdom was that it would take about six months for the impact to be felt. Hmmmm. How long ago was January? Maybe the benefits of all this year’s cuts are only now beginning to be felt. As is the impact from consumers’ having lower-than-expected energy bills to pay. Not to mention the $38 billion of advance tax refunds–don’t call them “rebates”–that we’re starting to get in the mail. Some economists think those refunds will boost the economy a full 1 percent.
Someday, when enough companies have gone broke and enough excesses have been flushed out of the tech and telecom worlds, survivors will emerge from the rubble, and life will go on. I’m not being Pollyannaish or contrarian for fun. There could be one last nasty dip left to go. I’m not sounding the all-clear and telling you it’s safe to run out and spend as if there were no tomorrow, or to go into debt and buy stocks because the bull market is coming back. I think the huge run-ups and huge growth of the late 1990s were an aberration, and they won’t recur for a long time. If ever.
The bottom line: the late ’90s was a time to avoid endless exuberance. The early oughts, which we’re now in, is a time to avoid being endlessly depressed. Even if it seems like the logical thing to do.
