Recent news on the economy has been very negative. Job growth has slowed significantly since the summer of 2000. The economy added 105,000 new jobs in December following a 48,000 increase in November. This is well below the over 200,000 monthly gains recorded in the first half of 2000. The number of applications for unemployment insurance rose significantly over the last month.
Signs point to a further deterioration in job growth in the months ahead.
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.