Now Bill can laugh as profits fall

Nothing concentrates an American mind quite like tax day: while in Britain the system is spaced out over the year, here every US taxpayer has to file his or her tax return by a specified date. The 2001 deadline was last Mon-day. Indeed, it is an American ritual for television news to show queues of people at post offices, making sure that the envelopes containing their tax returns are postmarked before midnight on the specified date. That, however, is a tradition fast fading: this year, 42.3 million returns were filed electronically, compared with 29.3 million just two years ago.

But the time of year explains why, even more than usual, money is currently on American minds. The front page of last Tuesday's New York Times featured a prominent story about the troubles of Cisco Systems - the kind of news item, I have to confess, that normally makes my eyes glaze over. But as I read on, so I came to see that Cisco and its prob- lems epitomise what is happening here in 2001.

Here we have what was, just a year ago, the world's biggest company. Its rise over the past decade mirrored that of the internet; its equipment supports much of the routing of internet traffic. A year ago, it was worth $560bn - more than legendarily profitable, quintessential American companies such as General Motors, Citigroup and Wal-Mart put together. But its profits for the past quarter were 30 per cent less than for the previous quarter. Now it is sacking 17 per cent of its workforce and its chief executive declares: "This may be the fastest any industry our size has ever decelerated."

From reading that New York Times front page on Cisco, I did as I was bade and went on to read the rest of the story in the (usually discarded) business section on page C4.

Doing so, I passed page C2 and learnt that Citigroup's earnings declined 8 per cent this quarter. There was also a prominent report headlined "Bank of America's first-quarter profit decreased 17 per cent". Opposite, hidden away as though they did not want anybody to see it unless the reader looked carefully, was a smaller story headlined "Quarterly net falls 26.2 per cent at Times Co - outlook is lowered for rest of the year". It went on to describe how the New York Times company itself reported a 26.2 per cent decline in income this quarter.

That same day, I discovered that the equally legendary American company Eastman Kodak is about to sack up to 3,500 workers, and has just had a 48 per cent drop in first-quarter profits. The revenues of the world's biggest microchip manufacturer, Intel, were slashed by more than half; the company is now putting on indefinite hold a $1.2bn development in Ireland that was to have been the single biggest construction project in that country. Philips Electronics NV is shedding (I like the way this apparently benign word is used so impersonally) 7,000 jobs, and Texas Instruments 2,500.

Last month alone, 86,000 Americans lost their jobs. Now unemployment is at its worst for nine years (how Bill Clinton must relish that statistic!).

It is likely we will hear a lot more of this kind of glum news during the last fortnight of April, because this is the period when many American companies - including more than half of the 30 that comprise the blue-chip Dow Jones Industrial Average, such as IBM, Microsoft and AOL Time Warner - report their current earnings and revenues. The anecdotes, meanwhile, proliferate. Not long ago, a building near Wall Street - 11 Broadway - housed more than 60 dotcom companies; now there are hardly any left. The owner of Buck's Diner in Silicon Valley, where many of the more enthusiastic venture capitalists like to hang out and swap tales of their conquests, reports that money is going through people's hands so quickly "they got rope burn".

All of which might make us conclude that the US is in the grip of a pretty appalling recession. But, statistically, this is still not so. For the US consumer, there are still low interest rates, a booming housing market and (despite those alarming unemployment figures) a relatively buoyant jobs market. Inflation rose by only 0.1 per cent in March, compared with 0.3 per cent the previous month. "This is really all pretty good news," insists Bill Cheney, chief economist with John Hancock Financial Services. Such analysts, bankers, stockbrokers and financial lawyers, naturally, have a vested interest in preventing the bubble from bursting. But is the writing now firmly on the wall for America's biggest economic boom for decades?

It all depends, finally, on US consumers; it is their jitteriness that has made the markets so volatile in recent weeks, thus reflecting deep uncertainty about America's economic future. In economic measurements, consumer confidence is at its lowest since 1993 - somewhere midway between its peak of early 2000 and its lowest at the beginning of 1992 (do I hear you cheering again, Bill?). In March last year, US households hit an all-time peak in economic confidence, with consumer earning and spending reaching no less than $43,200bn.

But the net worth of US households has since declined by 4.1 per cent. Notwithstanding the desperate confidence voiced by the money men, the outlook is bleak. Household energy bills are soaring, symbolising the bankruptcy of the utility company of Pacific Gas and Electricity and the increasingly severe troubles of its parent company.

The storm clouds, whatever the analysts say, are gathering. "I'm dashing off to the George Schwab office to withdraw all our market cash to pay tax," a friend and expert on the US economy e-mailed back to me. So watch this space.

By Andrew Stephen

Andrew Stephen was appointed US Editor of the New Statesman in 2001, having been its Washington correspondent and weekly columnist since 1998. He is a regular contributor to BBC news programs and to The Sunday Times Magazine. He has also written for a variety of US newspapers including The New York Times Op-Ed pages. He came to the US in 1989 to be Washington Bureau Chief of The Observer and in 1992 was made Foreign Correspondent of the Year by the American Overseas Press Club for his coverage.

This article first appeared in Blessed are the pure in heart

2001-04-23