Hd The New
El Ni & #324;o
When it comes to the economy, Asia has become this year’s El Ni & #324;o. Earnings down? Stock prices in a slump? Layoffs on the horizon? Blame it all on Asia.
But the truth about Asia, just as with El Ni & #324;o, is much harder to pin down. Much of the U.S. economy, especially as it relates to consumer spending, is separate and distinct from the financial troubles bedeviling Japan and Korea. Indeed, the world economic system is not as interdependent as some economists have portrayed; one country could be undergoing serious recession while another could remain unscathed.
That helps explain why economic growth has been marching at a faster-than-expected pace (much to the surprise of some economists who had anticipated serious fallout by now).
Still, the United States has not gotten off scot-free, as evidenced by several developments last week. The most notable was the announcement by Boeing Co. of sharp production cutbacks, resulting in the elimination of up to 25,000 jobs through 2000.
Much of the cutting centers on production of Boeing’s 747 jumbo jet, which has seen a sharp drop in orders because it happens to be the most popular plane on longer Asian routes. The Seattle-based manufacturer had anticipated the problem would be short-term. Now, it appears to be hedging its bets.
Also last week was the extraordinary marriage of Exxon and Mobil, which can be traced, in part, to the plunging oil market that’s been exacerbated by sluggish demand in Asia. The union is expected to result in the loss of at least 10,000 jobs and create considerable dislocations within the industry. It’s also a good bet that there will be more oil consolidation perhaps involving several L.A.-based companies and with it, more dislocations.
Put into context, of course, Boeing would still be in trouble without the Asian troubles, and oil prices would still be falling like a rock. Furthermore, the woes of any one company or industry are unlikely to steer an entire country into recession. Nonetheless, having a huge portion of the world economy in limbo or worse can’t help but put a drag over the entire system. Sooner or later, everyone gets hit.
A survey by the National Association of Purchasing Management shows a continued shrinking of the nation’s manufacturing sector, which represents about 20 percent of the U.S. economy. In addition, industrial production continues to grow weakly, and manufacturing employment has been declining for six straight months.
The prospect of a manufacturing slowdown or even an industry-wide recession has profound policy implications in areas ranging from the state budget to U.S. trade. And don’t forget the tens of thousands of jobs that will be lost over the next six to 12 months many of them high skilled and high paying. As Los Angeles discovered all too well during the aerospace retrenchment of the early ’90s, it’s not that easy to transfer job skills.
So while blaming Asia for every economic wrinkle makes little sense, neither does ignoring its influence on the United States, especially California. Even as Wall Street seems oblivious to most every reality, Main Street would do well to keep its eyes wide open.
