Corporate icons make it a bad week for American labor

Saturday, July 23, 2005

ROCHESTER, N.Y. -- In a week where Alan Greenspan said he expected the U.S. economy to keep growing and Wall Street seemed generally pleased with corporate performance, workers at Eastman Kodak Co., Hewlett-Packard Co. and Kimberly-Clark Corp., among others, were warned about thousands of new layoffs.

"You get immune to it after a while," longtime Kodak technician John Hladis said with barely a shrug when the scythe fell once more at the Rochester-based photography company, slicing away another 10,000 employees.

But some economy watchers are suddenly concerned that this latest flurry of job cuts -- a byproduct of various trends such as outsourcing, mergers, automation, changing technology and consumer demands -- may foreshadow some trouble ahead.

"We won't know till afterwards, but I do think we may be seeing a tipping point in the economic cycle that these big layoffs are flagging," said John A. Challenger, chief executive of Challenger, Gray & Christmas, a Chicago-based employment research firm. "I think it's a sign that leaks are breaking out."

One thing is for certain: It was not a good week for American labor.

U.S. corporations announced plans in June to cut 110,996 jobs -- the highest monthly total in 17 months -- and July's toll could turn out to be steeper. Overall job cuts are on the rise in 2005, reaching 538,274 through June, according to Challenger's monthly job-cut analysis.

Suffering its third straight quarterly loss, Kodak upped its job-slashing target to 22,000 to 25,000 on Wednesday from an earlier range of 12,000 to 15,000. By mid-2007, its worldwide payroll should level out below 50,000, one-third what it was in 1988.

Even as the picture-taking pioneer enjoys rapid gains in digital photography, it is struggling to cope with plummeting demand for conventional silver-halide film, its cash cow for the last century.

"We cannot keep bleeding year after year," Kodak's new chief executive, Antonio Perez, told analysts. "We need to establish an end point to this transformation, and we need to get there soon."

The same applies at Hewlett-Packard. The Palo Alto, Calif., computer and printer maker moved Tuesday to modify its pension benefits and eliminate 14,500 jobs, or nearly 10 percent of its work force, in a scramble to rein in bloated costs and combat efficient rivals.

Kimberly-Clark joined the job terminators Friday: The maker of Kleenex tissues and Huggies diapers plans to let 6,000 people go and sell or close as many as 20 plants. And Ford Motor Corp., which is already cutting 2,700 salaried workers this year, is mulling more aggressive measures.

In contrast, International Business Machines Corp.'s second-quarter earnings beat Wall Street's expectations, suggesting a rebound from its difficulties this spring when it targeted 14,500 job cuts, primarily in Europe.

Indeed, the economic picture displayed plenty of positives this past week.

The Labor Department said the number of Americans filing new claims for unemployment benefits plunged 34,000 to 303,000 -- the largest one-week improvement since December 2002. And while Greenspan cautioned that a big run-up in already high energy prices could throw a wrench into his forecast, the Federal Reserve Board chairman reiterated his bullish economic outlook.

"The economy," Challenger acknowledged, "has been very strong for the last year. We've seen over 2 million jobs created, we've seen unemployment drop to 5.0 percent, but I feel like we've probably hit the high water mark.

"We are beginning to see some of these icon companies topple a bit. It's not visible too much yet, but these are signs and suggest the next six months to a year are going to be tougher times for the economy."

The huge overhauls at General Motors Corp., Kodak and other bellwether companies are hardly surprising considering the heightened pressures of global competition, countered Pete Sperling, professor of finance at Yeshiva University's Sy Syms School of Business in New York. The U.S. economy has become more dominated by service industries, he said.

"It's something that's basically long overdue," Sperling said, referring to the transformations under way at many legacy manufacturers. "I would almost argue that if these businesses don't get it done now, we'll be in bigger trouble down the road. It's adapt or just go by the wayside.

"One of the most difficult things," Sperling added, "is you need a senior management that knows how to function in this kind of environment -- and that's very difficult to find. At Kodak, it sounds as if at least they're moving in the right direction."

Kodak is hoping film will continue to bring enough cash as it steadies on its new bearing. But less than seven weeks after taking the helm, CEO Perez is already reaching for the ax.

Hladis, 55, who joined Kodak in 1975, has survived a seemingly endless string of company cutbacks over the last quarter-century and is glad to be working in a research unit focused on "mostly digital stuff." But Stan Beloch, 52, a machine operator, worries his 15-year career has fallen in front of the firing line.

"They tell us nobody is going to lose their jobs, they can send us to other areas of the company," he said gloomily. "But there's not a whole lot of other areas you can go to."

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