As the economy has been slowing, firms have responded by shrinking the length of the workweek rather than firing their employees. Should business remain anemic, businesses will hold back on new hiring and begin to reduce its workforce to cut costs. This seems to be already happening. In the last two weeks, Dailmer-Chrysler, AOL Time Warner, Lucent and Worldcom have joined a number of companies reporting large job cuts. The portfolio losses through lower stock prices coupled with layoff announcements at major companies have dampened consumer moods.
Consumer sentiment is critical given the dominant role of the consumer in the economy.
The growing gloom among consumers is clearly showing up at the cash register. Retail sales declined in both December and November. National retail chains recorded dismal holiday sales that fell well short of already lowered expectations. Vehicle sales in December fell to around a 15 million unit selling pace. This selling pace is close to the historic norm but well below the 18 million unit selling pace in the spring of 2000.