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Interesting read on the reality of recession.

Old 09-11-09, 12:58 PM
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Interesting read on the reality of recession.

From Time magazine. Really hits home because they used real-life examples. Nothing most of you well-informed otters weren't already aware of......but an interesting read nonetheless.

By MASSIMO CALABRESI / ROXBORO Massimo Calabresi / Roxboro Fri Sep 11, 1:25 am ET

The Eaton Manufacturing plant in Roxboro, N.C., makes a 3-in. gadget called a lash adjuster that keeps pressure constant on engine valves, increasing fuel efficiency. Last year Brian Whitfield, a supply-chain analyst at the factory, had plenty of work scheduling orders for raw materials, components and packaging. But with the collapse of GM and Chrysler, business ground to a halt, and when Whitfield arrived at his cubicle on Jan. 20, he found an e-mail from management announcing layoffs. He looked around and saw people leaving, carrying boxes. Then his boss called him into the conference room. "Basically it was, 'Sorry, we're going to have to let you go due to sales,'" says Whitfield, 40. He returned to his cubicle with a packet of information about his severance benefits. He dropped it on his desk. He stared at his computer for a few minutes. "Then I just got up and left," he says.

The first week of unemployment was hard to take. Fortunately, Whitfield has a wife, Debbie, who earns $39,000 a year as an accountant for the local county government. The couple didn't have to worry about losing their cozy, well-kept home or being able to take care of their 4-year-old son Logan. After Brian's eight-week severance ran out, he started collecting unemployment insurance and the Whitfields began reining in spending to cover what they expect will be a 40% drop in income this year.
(See how Americans are spending now.)

(See pictures of retailers which have gone out of business.)

Though it has been painful for him, Whitfield's lost job should have had little effect beyond his immediate family. One lost job is a microscopic event in the massive organism of the U.S. economy. In good times, America sheds 2.5 million jobs a month but creates nearly 3 million new ones. Rolling unemployment allows businesses to adjust to demand, improving efficiency and fueling growth. A healthy economy compensates job losers by creating new jobs for them. America's economic athleticism has been the envy of other countries, a key to its success.

But the sharp shock of the 2008 financial crisis paralyzed the U.S. economy. Mass layoffs have been at a record high, flooding the labor market with job hunters. Six years of manufacturing-job losses were compressed into 18 months, overwhelming retraining programs. The collapse of home values and the tightening of credit make worker mobility a moot issue. Instead of connecting the jobless to new jobs, the employment system has seized up. After 33 weeks of searching for work, Whitfield is looking warily to December, when his unemployment insurance ends.

In an unhealthy economy, a single lost job becomes infectious, combining with others and spreading through family, neighborhood and community. Widespread cutbacks in spending by families mean lower demand for businesses and lower tax revenues for the government. This belt-tightening means fewer car sales and thus fewer jobs for car-part makers. It means less government spending on infrastructure and other public services, including economic development. The sum effect is less available work for job seekers - a perfect vicious circle. For a well-educated job loser like Whitfield, it can mean a permanent drop in earning power and standard of living - a reversal of the American Dream.

One Lost Job

Sunday morning in Roxboro. The streets are empty, but the church parking lots are full: it seems as if every one of the town's 8,876 residents is at services. At the United Methodist Church on North Main Street, Pastor T.R. Miller is delivering a sermon titled "Rags to Riches to Rags." At the largely African-American First Baptist Church on the other side of Durham Road, the choir is singing "I'd rather have Jesus than silver and gold" so loudly you can hear it in the parking lot.

In the second-to-last row of Roxboro Baptist, the Whitfields try to listen to the sermon, but Brian's mind wanders. Last autumn, Debbie warned Brian that the ax might fall. She grew up in Flint, Mich., the granddaughter of a man who participated in the landmark 1936-37 sit-down strike at GM's Fisher body plant that established industrial-labor-organizing rights in America. But she saw her father and uncle go down with the automakers. "When they shut down the Fisher plant [in 1987], everything within a two-to-three-block radius closed down: bars, restaurants, gas stations, banks. Because I lived through the '80s up there in Flint, I just had a feeling that something wasn't right," she says. Since December, Eaton has idled 99 of its 289 Roxboro employees.

After he lost his job, Brian went to the Roxboro office of North Carolina's Employment Security Commission and met with Roxie Russell, the branch manager. She suggested that he go back to school. Even if Brian could afford it, he doesn't want to start a two-year M.B.A. program only to drop it when a job comes along. He has focused his efforts instead on looking for work, so far without success. He keeps his spirits up by looking after Logan and coaching Little League.

In the meantime, the family is trying to save. Brian's father, a barber with a shop opposite the courthouse, has some farmland outside of town. Brian planted a garden and takes home vegetables; Debbie calculates that they have shaved $125 a month off their grocery bill, but most of their savings come from other cutbacks. They dropped their membership at the local country club, saving $110 a month. They no longer spend $350 to $400 per month on babysitting now that Brian looks after Logan. Their weekly dinner date? Gone, saving another $175 or so per month.

The Whitfields aren't the only ones scrimping in Roxboro. Roy Waldron, a pipe fitter, has stopped going out to dinner with his wife Judy since losing his job in February. Tommy Woods, a former forklift operator, says he is collecting aluminum cans to get gas money to drive to job interviews.

The list goes on: Russell, the elegant, no-nonsense employment-office manager, says traffic to her office increased 13% over the past 12 months. Of the county's 19,510 workers, 2,358 were unemployed as of Aug. 13 - a rate of 12%. More cuts may be on the way. Aleris International, a manufacturer of rolled aluminum that employs 149 at its Roxboro plant, filed for Chapter 11 bankruptcy protection in February. Charter Communications, which has 14 working for it in Roxboro, followed suit in March. "People are afraid to spend their money now," says Marcia O'Neil, head of the Roxboro Area Chamber of Commerce.

The imposed frugality in Roxboro goes directly to Brad Rogers' bottom line. He and his wife Betty opened a popular Golden Corral franchise just south of unemployment services on Durham Road in 1999. Everyone from the town's low-skilled workers to the city elders goes there, drawn by the $9.99 all-you-can-eat buffet and the slogan "Help Yourself to Happiness." This year the Whitfields, the Waldrons and many others aren't: sales are down 2.5% this year, and it would be worse, says Rogers, if he hadn't launched a big coupon push. But that's eaten into profits, which dropped 63% over the past two years and are on track to do the same this year.

To stay in the black, the Rogerses cut all worker hours 10% at the beginning of August, which saved jobs but lowered the wage dollars available to the community. Rogers isn't even the worst off - his cheap buffet can still fit into many tight budgets. O'Neil says other restaurant owners in town tell her they're down 25% in 2009. Big Al's diner closed in February.

In the bigger picture, though, consider a GM dealership that was run by three brothers and closed down in November 2008, taking with it 26 jobs. One brother, John Boyette, moved out of town in search of work, while another, Norman, is selling used cars for a dealer in Cary, 50 miles away. "We're getting along the best we can now," says Norman. It's axiomatic that if the local dealership can't sell cars, then GM doesn't need as many parts from Eaton, which then doesn't need as many Brian Whitfields.

The Scramble to Cut Back

Compared to other parts of the country, Person County's 39,000 residents are actually fortunate. Forty miles south of Roxboro is Research Triangle Park, near Durham, where growth has been led by innovation and the unemployment rate is a mere 6%; 51% of Person County's workforce travels to Durham County for jobs, and that helped soften Person's economic woes in the past.

But the previous downturns were not as severe as this one. Decreased spending at places like Golden Corral has gone straight to the county budget's bottom line. This year's sales-tax revenues are projected to drop 10% from last year. Overall revenue is expected to fall 9%, or $5,528,022. Capital projects have been hit. The county had planned to renovate the courthouse, an elegant 1930 brick building that sits in a square off Main Street and has a workmanlike modern extension off the back. At a meeting in May, the county council decided to delay the project.

In that, the county joined a troubling national trend: the collapse of construction spending. Job losses in construction have been a key amplifier of the ripple effect in this recession. In 2007 there were 175 new private residential building permits issued in Person County; as of late last month, the number was 50.

With folks forgoing vacations, Hyco Lake, 10 miles north of Roxboro, was a busier place this summer. It's a man-made lake that actually serves a business purpose. The south end of Hyco Lake feeds cooling water to a massive power plant owned by Progress Energy. The plant employs 268 people and generates up to 2,425 MW of electricity. In January, just after he was laid off, Whitfield called human resources at Progress to see about a job. The Roxboro power plant employs six supply-chain analysts, says Harry Sideris, the plant manager, but he doesn't need any more. Even if he did, Sideris says, Progress has a soft hiring freeze in effect and is filling only essential positions.

Progress also has a plan to sell synthetic gypsum, a by-product of its newly installed pollution-reducing stack scrubbers, to a plant that was scheduled to be built this year by wallboard maker CertainTeed. Gypsum is a critical component of wallboard, which is a critical component of housing construction. You know where that story goes. Because construction has collapsed, CertainTeed has postponed the wallboard plant until 2011.

That's too bad, because according to John Donaldson, president of CertainTeed Gypsum, the plant would have needed a supply-chain analyst. Someone like Brian Whitfield.
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