Layoffs spread, CEOs see more pain ahead

BOSTON (Reuters) - Fear of a deepening recession is spreading throughout corner offices across corporate America, prompting chief executives in all sectors to slash thousands of jobs as they scramble to find ways for their companies to survive the worst economic crisis since the Great Depression.

AT&T Inc and DuPont Co led the list on Thursday of blue-chip U.S. companies laying off workers in the weeks before the Christmas holiday. A number of surveys showed that CEOs were planning more cuts, as a measure of corporate chieftains' confidence fell to a record low.

The pace of the cuts left even some U.S. CEOs wondering if things were going too fast.

"The idea of a company that's earning money, not losing money, that's not, let's say 'industrially endangered,' to have just cutbacks so they can earn another $12 million or $20 million or $40 million in a year where no one's counting is really a horrible act," said Barry Diller, CEO of Internet media company IAC/Interactive Corp.

"It's certainly not necessary," Diller said at the Reuters Media Summit in New York. "It's doing it at the worst time, it's throwing people out to a larger, what is inevitably a larger unemployment heap, for frankly no good reason."

CEO CONFIDENCE TUMBLES

The Business Roundtable's quarterly CEO Economic Outlook Index tumbled to 16.5 in the quarter, the biggest drop it has ever taken, to the lowest point by far in the survey's six-year history. A reading below 50 means that CEOs expect contraction rather than growth.

The index had stood at 78.8 in the third quarter. The prior low of 49.3 was recorded in the first quarter of 2003.

"Given the cost pressures we are seeing, they are really tightening their operations and really tightening their growth priorities," said Harold McGraw, chairman and CEO of The McGraw-Hill Cos, who serves as Roundtable chairman.

McGraw said companies were counting on more stimulus action from Washington to buoy the economy.

The CEOs, who were polled between November 3 and November 17, said they expect the U.S. economy to be flat overall next year, with recovery in the second half offsetting a weak start.

Sixty percent expect to cut their U.S. headcount over the next six months. Fifty-two percent expect to cut U.S. capital spending and 45 percent foresee a decline in sales.

"What we have to do is get our costs and cash in line with the current reality," DuPont CEO Chad Holliday told Reuters. "If you wait too late, then you fall behind the curve."

Business Roundtable's 160 member companies employ almost 10 million people and generate $5 trillion in annual revenue.

SPREADING DOWNTURN

The news was the latest sign that the global economic downturn, which started with the collapse of the U.S. subprime mortgage market, is worsening.

Top U.S. phone company AT&T said it would eliminate 12,000 jobs, chemical maker DuPont announced it aims to cut 2,500 positions and auto parts maker Hayes Lemmerz International Inc disclosed plans to reduce its headcount by about 1,700.

Viacom Inc, Sanofi-Aventis, Constellation Energy Group, Steelcase Inc, AbitibiBowater Inc, UTi Worldwide Inc and Windstream Corp also unveiled job-cut plans.

The year-long recession has already taken a heavy toll on U.S. employment, with the Labor Department reporting that the number of workers claiming jobless benefits was at a 26-year high.

U.S. data due out tomorrow is expected to show that employers cut 340,000 jobs in November, according to a Reuters poll of economists.

Over time, the cuts become part of a self-reinforcing cycle, hurting consumer spending -- which is responsible for the lion's share of U.S. economic activity -- and further pinching corporate results, economists said.

"You can't pay people if you don't have the revenue to support that payroll or can't obtain the credit," said Michael Goodman, director of economic and public policy research at the University of Massachusetts' Donahue Institute. "But collectively, those actions can make economic conditions worse and fuel this self-reinforcing cycle."

There is no dearth of data reinforcing the grim picture for working Americans.

A survey by Chief Executive magazine found that 75 percent of CEOs expected employment to fall over the next quarter.

Another study by The Hackett Group predicted that some 350,000 U.S. jobs in corporate finance, information technology and other back-office functions would move offshore to India and other low-cost countries over the next two years.

Even as companies look for ways to slim down, they need to take care not to cut too deep, warned Paul Osterman, professor of human resources and management at the Massachusetts Institute of Technology's Sloan School of Management.

"If they go too far, they will find themselves in the hole when the economy turns around, and investments they have made in people will have been lost," Osterman said. "Companies need not to engage in reflexive, thoughtless job cutting because it seems like the fashionable thing to do."

(Reporting by Scott Malone, additional reporting by Ben Klayman and Euan Rocha in New York; editing by Gunna Dickson, Gary Hill)