Signs indicate we are in for a long haul of challenging economic times. Industries and businesses across the U.S are dealing with the economic decline. Industry downsizing by nearly every industry outside of health care is afflicting American families. Unemployment will likely peak in 2010, according to Federal Reserve Chairman Ben Bernanke.

It appears the economic crisis began with excessive consumer debt, particularly high amounts of mortgage debt. New homeowners took out trillions of dollars in loans. Many of them had few assets and lower income. Former Federal Reserve Chairman Alan Greenspan referred to “irrational exuberance” as driving speculative bubbles. The mortgage bubble has burst, leading to a collapse in the economy.  

Some financial institutions over-leveraged their assets and made risky loans. They did not use ethical or sound financial practices. The financial system has taken a hit from the housing bubble, incurring losses. Banks and financial services incurred huge losses on securitized loans. This is making it more difficult for consumers and firms to borrow.

Falling income

Thousands of employers are struggling to stay in business. With fewer customers and sales, employers are cutting expenses to help make ends meet. Some employees are working fewer hours or having reduced workweeks. Growing numbers of employees are agreeing to a wage or salary freeze.

The global outplacement firm Challenger, Gray & Christmas surveyed 100 human-resource professionals in a January poll. Imposing pay cuts and capping wages has been rare up until this current recession. Yet 27.2% of the companies recently surveyed said they were requiring a salary cut or freeze (WSJ, 4/9/09).

Employers are looking for ways to cut costs. For example, USA Today is requiring unpaid furloughs for a large number of its employees. Saks is cutting merit raises and is no longer matching contributions to its 401(k) plan. Caterpillar says it is cutting executive compensation by up to half and not increasing wages for support staff and managers. FedEx is slashing senior executive pay and suspending 401(k) contributions (Money and Markets, 1/22/09).

In February 2009, consulting firm Watson Wyatt Worldwide Inc. polled 245 U.S. companies on how they’re weathering the recession. A majority, 65%, said they had cut jobs or were cutting jobs in the future. Some companies said they had mandatory furloughs (17%), and others offered voluntary furloughs (19%), according to The Wall Street Journal (4/13/09).

An increasing number of employers are experimenting with furloughs, hoping to avoid layoffs. With week-long furloughs, in many states hourly employees can keep benefits. Employers win by retaining productive and highly skilled workers, avoiding rehiring and retraining. By offering furloughs, employers also avoid paying severance costs.

Unemployment

With company earnings disintegrating, firms are cutting losses with layoffs. Some economists predict unemployment could reach double digits.  

Job losses are taking place in many different sectors: manufacturing, financial, and services. Even state and local governments are cutting thousands of jobs to balance budgets. Jobs in education and nursing, traditionally filled by women, haven’t been affected as much as jobs in other sectors.

Some companies are hiring as they fire. Peter Cappelli of Wharton School, University of Pennsylvania, has been following this trend. He says that, “in past decades, many employers retrained and relocated underused workers. Now they’ve discovered that you can restructure even faster by laying off and hiring” (WSJ, 5/11/09). Among the companies firing and hiring are Boeing Co., Microsoft Corp., IBM Corp., AT&T Inc., Yahoo Inc., and Time Warner Inc. As shifts take place in industry, these employers are hiring for other needed work skills in other locations.

Retirees Affected by the Recession

Retirees have less income, with losses from stock funds. Hoping they would retire in comfort, they are faced with a bear market that will likely be around for awhile. Retirees are finding they can’t count on a steady stream of retirement income, as they had hoped. Some pension plans are not providing adequate income, as planners assumed they would.

Interest income is being cut to almost nothing. Stock market investors are finding they can’t always count on having stable yields. Stock dividend income is being delayed, reduced, or canceled. Stock losses have eaten into incomes (Money and Markets, 2/2/09).