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Nation's job loss biggest in decade

Posted at 4:18 p.m. PDT Saturday, May 5, 2001

BY MATT MARSHALL, Mercury News

The nation lost a larger than expected 223,000 jobs in April, the sharpest decline in 10 years -- and the latest sign that the national economy is hovering on the brink of recession.

The size of Silicon Valley's job loss won't be known until regional data is released Friday, but economists said the worst may be to come in the Bay Area.

``This is a very important indicator that the economy is slowing rapidly and is on the edge of recession,'' said Edward Leamer, economist and director of the UCLA Anderson Business Forecast. ``Silicon Valley is already in a recession.''

San Jose and San Francisco, he said, were the envy of the nation during ``the Internet rush era,'' but now companies across the nation aren't buying as many technology products, as they focus on cutting costs.

That means the outlook could darken for Bay Area workers. Despite a string of layoffs everywhere from Cisco to Hewlett-Packard, the Bay Area still enjoyed a rock-bottom unemployment rate of 2.2 percent in March, about half the nation's. San Jose's employment level -- though it has receded slightly from its high of 999,000 jobs in December -- has remained high by national standards.

Local economists said that is because most laid off workers have been able, until recently, to find jobs with other companies. However, the economy may be slowing to a point where any extra supply of jobs has disappeared. At a recent Hotjobs.com fair, only 40 employers showed up, instead of the 70 last year, and many more people showed up looking for work, said company organizers.

``In a sense, we haven't really begun yet,'' said Stephen Levy, economist at the Center for the Continuing Study of the California Economy in Palo Alto. ``Bay Area residents should anticipate some weakness over the next six months.''

The national unemployment rate rose to 4.5 percent in April, up from 4.3 percent the month before, and the highest level in two and a half years, the Labor Department said. The rise in unemployment figures comes only a week after government figures showing that the economy grew at a 2 percent annual clip during the first quarter. However, economists said gross domestic product data, which attempts to measure the total number of goods and services produced, leaves lots of room for error. The unemployment data, by contrast, is more precise, they said.

Stocks initially fell on the news, and then quickly rebounded. The technology-heavy Nasdaq composite index rose 45.33, or 2.1 percent, to 2,191.53 -- led by shares of valley companies like Cisco Systems, Juniper Networks and Intel. The Dow Jones industrial average rose 154.59 points to finish at 10,951.24.

A weaker than expected economy means the Federal Reserve will be more likely to cut interest rates at its next meeting on May 15. Lower rates, the Fed hopes, will reduce the cost of borrowing, encourage people and companies to spend more, and so stave off a recession. A recession is defined by economic contraction over two straight quarters.

The problem is that rate cuts usually take anywhere from six months to a year to ripple through the economy. Before Friday's job news, economists expected the Fed to cut interest rates by a quarter percentage point. They now expect a half percentage point cut.``The Fed is on the case,'' Levy said.

What economists fear most is a so-called ``trickle-down'' effect, in reverse, on consumer spending, which makes up two-thirds of the economy. Laid-off workers are apt to cut back their spending. Those who still have jobs become worried about their futures, and cut their spending, too. Such a broad decline in spending would dent company profits, leading to more layoffs -- and so on, in a vicious spiral downward.

It may mirror the virtuous cycle upward over the last five years, says Ajit Shah, a venture capitalist at WorldView Technology Partners in Palo Alto. And though it may hurt for those laid off, he said the rise in joblessness could help stem some of the Bay Area's excesses.

``People straight out of college were going to start-ups, and the mantra was `no experience preferred,' '' Shah said. ``People fresh with MBAs were becoming CEOs and VPs of companies. To the extent that the market corrects some of that, it is healthy for long-term growth.''

The number of jobs shrank for the second straight month, after dropping 53,000 in March. The data does not include farm workers. The biggest drops in April were the losses of 104,000 manufacturing jobs and 108,000 temporary jobs, which in part reflected cuts in factory production.

Mercury News wires services contributed to this report.

Contact Matt Marshall at mmarshall@sjmercury.com or (408)920-5920.

-- Swissrose (cellier3@mindspring.com), May 05, 2001