Microsoft bares first ever major layoffs

WASHINGTON — Tech giant Microsoft announced its first major layoffs in company history, saying it would cut about 5,000 jobs, one of several economic signals that emerged Thursday indicating that the recession was spreading and deepening.

A stalwart of the technology sector, Microsoft was strong enough to weather the dot-com bust and the 2001 recession unscathed, but the severity of this decline has led to cutbacks. And two new government reports underscored that this downturn may be far worse than many workers have known.

The number of new housing starts has dropped to its lowest since the Commerce Department began keeping data in 1959.

The initial claims for jobless benefits, meanwhile, jumped 62,000 to 589,000 for the week ended Jan. 17, matching the highest level since the recession of the early ’80s. Unemployment stands at 7.2 percent, but many economists expect it to continue to rise by at least another point.

At the same time, analysts and economists are predicting more staggering bank losses of $1 trillion or more, a prospect that could overwhelm the federal $700-billion financial rescue plan known as Troubled Assets Relief Program, or TARP.

“We entered an economic free fall in the fourth quarter of last year, and in the first three weeks of January, we have not seen any evidence of that stopping,” said Robert Dye, senior economist at PNC Financial Services Group. “The economic landscape could hardly be bleaker. We’re just seeing bad news piling on top of bad news right now.”

The Microsoft layoff announcement follows a drumbeat of dismal news from many tech companies.

On Wednesday, another tech giant, Intel, announced cuts that would affect 5,000 to 6,000 jobs. It will also shutter its last manufacturing plant in Silicon Valley.

The effects of the downturn had set in fast for the world’s largest chipmaker. In mid-October, Intel had forecast sales of $10.3 billion; ten weeks later, they came in at $8.2 billion.

The “speed of the downturn” was surprising, a company spokesman said.

The trouble for technology companies is far-reaching: Motorola, Autodesk, Seagate Technology, Lenovo Group, eBay, Yahoo, Dell, Xerox, Nortel Networks and Sun Microsystems have all announced layoffs in recent months.

In explaining its job cuts, Microsoft cited the rapid slowing in sales of personal computers. The cuts represent about five percent of the company workforce, but Microsoft said it also expects to hire two to three thousand people in the next 18 months.

“We are really putting the brakes on at a new level,” chief executive Steve Ballmer said in an unusual appearance on a conference call with analysts.

In another break from previous practice, the company declined to predict its earnings for the rest of the year.

Even search engine juggernaut Google, which is weathering the recession better than most analysts had expected, announced Thursday that its profits had slipped for the first time.

In the fourth quarter, Google made $382 million, a 68 percent drop from the same period in 2007. Although it was not the company’s first year-over-year decline, it was the largest since it went public in 2004.

Google chief executive Eric Schmidt described the upcoming months of the recession as “uncharted territory.”

“We don’t know how long this period will last,” Schmidt said to analysts in a conference call.

Overhanging all predictions about the economy is what the government might do about it. Under consideration is an $825 billion economic stimulus bill, but some economists are calling for more direct support for banks.

A number of economists now think the volume of losses for banks could climb far higher than estimated.

New York University economist Nouriel Roubini, who has been credited with predicting much of the ongoing economic distress, on Tuesday estimated total losses at $3.6 trillion.

Even given the TARP, that “still leaves the U.S. banking system borderline insolvent if our loss estimates materialize,” he and fellow economist Elisa Parisi-Capone said.

“There’s no doubt that there’s more losses to be taken,” Stanley said. “It just becomes an issue of the willingness and ability of the government to subsidize the banking system.”