Jobs on the Line

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Even in the face of last year's global financial crisis and stock market turmoil, American consumers kept the faith. As the Fed scrambled to loosen its tight money policies, stock markets rebounded and key indexes soon scaled heights even higher than those seen before the scary interlude.

Recently, Wall Street's main focus has been on technology stocks, especially those of the Internet variety, largely due to their eye-popping returns. But even "low-tech" providers have seen their shares do well, with more than a few rising faster than the market overall.

In particular, the American Demographics Consumer SentiMeter (our basket of companies whose shares are sensitive to swings in consumer confidence) has been outpacing the Standard & Poor's 500 stock index since the October lows, a performance which indicates improving consumer attitudes. This interpretation is underscored by data from the Conference Board, which shows that Consumer Confidence has advanced each of the past three months, to 127.6 in January, as compared to 119.3 last October.

Still, individuals need assurance that the good times will persist in order to maintain the robust confidence that enables them to spend freely on big-ticket items. A disinflation-induced profit squeeze enveloped many companies last year, and quite a few responded by setting plans to restructure their operations, plans which normally incur job losses. Nearly 750,000 jobs were cut by U.S. companies in 1998, the highest total of any single year in this decade.

Luckily, America's job creation machine is still humming, and the net effect of the "old job lost, new job gained" process is higher productivity, which is translating into more goods for practically everyone, without triggering inflationary pressures.

Consider the wireless phone industry, which provides a service that was the stuff of science-fiction only 20 years ago. Technology advances and healthy competition have caused prices to plummet, enabling millions to communicate on the run. Within five years, it's expected that half the population of most developed countries will be mobile-phone users. No wonder a bidding war developed in January for Consumer SentiMeter component stock AirTouch, with U.K.'s Vodaphone the ultimate victor, paying almost $60 billion for the company.

The capital markets are experiencing a similar phenomenon. The explosive growth of the Internet, combined with plummeting commission fees for electronic trading, have convinced millions of Americans to take a more active role in managing their investments. SentiMeter component company Charles Schwab says 61percent of its trades were generated by online accounts last year, up from 41 percent in 1997. Industrywide, 1998 saw the number of online accounts rise more than 100 percent to almost 6 million, according to a study conducted by brokerage firm Piper Jaffray.

It remains to be seen whether enough jobs can be created by these and other high-growth industries to offset 1998's record-setting layoffs. Otherwise, consumption may suffer while displaced workers seek the training they need to qualify for new opportunities.

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