Layoffs cut deeply into workforces

Behind the jump in joblessness for August lie firms running out of other ways to cut.

After a corporate subsidy was eliminated, employees at UGO Networks Inc., a New York-based dotcom, were forced to pay 50 cents for sodas instead of 25 cents. They've also been asked to bring in their own mugs, so the firm doesn't have to buy paper cups.

At 5 a.m., the manager of an electronics firm uses a flashlight to read by to save on electricity.

Employees at Lucent Technology's corporate headquarters no longer get free bottled water, and all cubicles are lighted with one fluorescent bulb instead of four.

These are just some of the ways companies are trying to save money as the nation's economy continues to stagnate.

Despite these efforts, however, there are just so many water coolers that can be removed before a firm has to consider one of its biggest expenses - head count.

Across the country, many businesses have already taken the easier steps to cutting payroll expenses, reducing overtime, laying off temporary workers, offering early retirement. Now they're increasingly being forced to cut into their core workforces. This was evident last week when the government reported that the unemployment rate for August jumped from 4.5 percent to 4.9 percent. Some 113,000 jobs - mostly in manufacturing - were lost.

The news triggered a 230-point drop in the Dow Jones Industrial Average. President Bush was forced to reassure the nation that he has a plan for tackling unemployment.

"It's pretty ugly," says Mark Zandi of the Economy.com. "It's clear last month was very difficult on the labor market."

Economists think the continued job losses will attract the attention of the Federal Reserve, which has cut rates seven times this year. "The report guarantees that the Fed will ease on Oct. 2, probably by 25 basis points, but they may do 50 [one-half of a percentage point]," says Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York.

A higher cut would indicate that the Fed is worried that the job losses signal an even longer downturn than anyone expected. Most economists still think a combination of tax rebates and lower interest rates will allow the economy to begin growing again. Mr. Steinberg, for example, predicts 2 percent growth in the quarter ending this month, up from 0.2 percent in the second quarter.

Even if the economy does show some signs of life, the jobless rate is expected to continue to rise. "Companies don't like laying off people, so they put it off as long as possible," says Mr. Steinberg. "Then, when the economy begins to turn, they are slow to rehire."

In fact, companies try to reduce all their other expenses first. Last week the Chicago outplacement firm Challenger, Gray & Christmas listed ways companies are trying to pare expenses. Among its findings:

• The accounting firm Andersen is splitting the cost of its corporate suite at The Ballpark in Arlington, Texas, with another company.

• Bank One CEO Jamie Dimon is paying for his own Wall Street Journal subscription - as are a growing number of other executives.

• Dow Jones & Co, the publisher of the Journal, has removed indoor plants from its offices to save on maintenance costs.

"While some of the cost cutting may appear on the surface to be petty and unnecessary, there will be few grumblings among those affected, since it's understood the sacrifices could be the difference between remaining employed or being laid off," says John Challenger.

The nickels and dimes can add up. For the first six months of this year, Lucent cut $2 billion in expenses, says spokesman Bill Price. Just by keeping the lights off and managing its electric usage better, the company estimates that it's saving $1 million a month. Mr. Price himself does not turn on his lights in the morning when he gets enough sunlight.

One of the biggest savings has come from cutting back on travel. Lucent is trying to make sure its employees use the company's "preferred" airline and hotel chain, which have pre-set rates. There's also less flying to trade shows and conferences. Travel is now used mainly for customer meetings. The result: a $200 million saving in six months.

The biggest cost reduction has come from its payroll. In January, Lucent had 106,000 employees. Today it's down to 87,000. Price says the telecommunications firm expects to shed another 15,000 to 20,000 jobs. "Some will be through attrition, some through layoffs, some through outsourcing," he says.

Last week, more layoffs were announced: at Gateway Industries (5,000), Ford Motor Co. (4,000-5,000), Agilent Technologies Inc. (4,000), and ADC Telecommunications (2,500). "Things are a mess now, but they should begin to stabilize going into the fall," says Mr. Zandi.