Brian.oco 0 Posting Whiz

Two pieces of dispiriting information on the economy hit the big wire services today:

The Associated Press -- The economy contracted at a staggering 6.2 percent pace at the end of 2008, the worst showing in a quarter-century, as consumers and businesses ratcheted back spending, plunging the country deeper into recession.

The Commerce Department report released Friday showed the economy sinking much faster than the 3.8 percent annualized drop for the October-December quarter first estimated last month. It also was considerably weaker than the 5.4 percent annualized decline economists expected.

Reuters -- U.S. consumer confidence fell to a three-month low in February on expectations that the recession would grind on throughout this year and the jobless rate will keep rising, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its final index reading of confidence for February fell to 56.3 from 61.2 in January.

That was marginally higher than the preliminary result of 56.2 announced earlier this month but was the lowest final reading since 55.3 in November 2008.

"Confidence remained unchanged at the same low level recorded at mid-month as consumers found no reason to expect that the recession would end during 2009 and reported record declines in their personal finances and job prospects," the report said. "Moreover nearly two-thirds of all consumers thought it would be at least five years before the full restoration of favorable economic conditions."


Hopefully, we’ll start to see that news like this is “rear-window” stuff – bad events that happened, but won’t happen again. That’s probably more likely with the GDP number, because the economy can only fall so far, and, sooner or later, credit has to loosen and money can begin rolling through the economic pipeline again.

But the bigger economic news also has a ripple effect on the ways companies operate. Take Cypress Semiconductor, which announced yesterday in an SEC filing that it plans on slashing salaries for all of its employees. The chip manufacturer plans on culling 10%-to-11% from each employee’s paycheck, in hopes that a wide, horizontal cut in pay will avoid significant layoffs. Cypress is also canceling employee bonuses, and no salary hikes for executives.

Will employees take their lumps and keep morale up, knowing that layoffs were avoided (for now?) As long as the cuts are temporary, as Cypress implies, then “probably”. But what if things get worse, and Cypress has to cut staffers anyway? Then morale will really suffer.

That scenario, now playing out in real life, will also play out in companies all across the technology industry, as firms look to absorb the thundershocks from the economy. The move certainly did not hurt Cypress’s stock price – it rose 3% after the announcement. But investors will absorb only so much bad news.

And bad news seems to be all we’re getting now.

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