Tuesday, January 22, 2008

Trump Is Right: "You're Fired!"

On "The Apprentice" TV show, Donald Trump cans an employee by barking out his signature catch phrase: "You're fired!" Yet if Trump was a really shrewd business executive, he'd find a way to collect royalties on that stinging rebuke because a lot of bosses are going to be using it.
So far, the economic story has centered on the sub prime mortgage crisis, corporate credit crunch and the federal government's efforts to skirt recession, including the accelerated lowering of a key interest rate. But a new act is about to unfold: Widespread job cuts and rising unemployment.
Already, Sprint-Nextel, Yahoo, BMW, Citigroup, Bank of America have announced thousands of job reductions. Locally, Sears Holdings is restructuring and Motorola is posting crummy earnings. Does anyone think this type of bad news won't be accompanied by more lay-offs?
Unfortunately, we're at an inflection point in this current economic downturn (OK, let's call it a recession), when nervous companies pull back, focus on containing costs and start dumping employees. But unlike past mini-downturns, this time around the job cuts threaten to go deep and be more painful--touching every geographical region and sector of the U.S. economy. In a few months, I fear the current national unemployment rate of 5.0 percent is going to look like the good old days.
The main culprit is the housing crisis. In past downturns, when technology stocks went bust or financial institutions ran into trouble, the pain was similar to a bout of the 24-hour stomach flu--quick, severe, contained and then over. This time, however, the ailing housing market is more like an undiagnosed disease--it hurts everywhere, is traveling through the bloodstream of the global economy, and there's no remedy in sight. Not yet, at least.
The stock market hates uncertainty and Corporate America despises it. As a result, companies are starting to rethink their 2008 business plans. They're backing off growth plans (set late last year or earlier) and reverting to serious cost-cutting. The fastest way to save big money is by dumping nagging fixed costs, like employees and jobs.
In past downturns, we've seen "regional recessions". For instance, when Wall Street suffered, New York felt the brunt of the decline. When manufacturing retrenched, the Midwest was hurt. And when technology stumbled, the Pacific Northwest reeled.
This time it's going to be widespread and again it comes down to housing.
New home construction throughout the country is in a free fall and anyone connected to the recent building boom is either out of a job or on the bubble--including contractors, trades, suppliers and retailers.
The credit problems connected with the bad sub prime loans has infiltrated every major and regional banking company, which have been forced to write-down loans and lay-off workers.
The investment banking brains on Wall Street packaged the sub prime loans and sold them on the secondary market to investors all over the world in an effort to "spread the risk." Well, it's spreading and nobody knows the actual value of these loan packages, nor how many dog sub prime notes are mixed in with healthier investments. Talk about uncertainty.
Even banks that have avoided major sub prime hits, are worried that established customers may not be able to pay down their home equity lines, credit card bills and auto loans if unemployment goes up.
Which brings us back to jobs.
Remember that a company's main priority is to make a profit, not employ people. In this age, that dynamic is more powerful than ever, especially as CEOs deal with bands of increasingly roguish shareholders who want bigger results and lower-than-ever costs.
That means many U.S. workers this year won't have to turn on Trump's show to hear that awful phrase: "You're fired".



(Photo courtesy of F. Sigorski on Flickr.com.)