Local analysts agree: Colorado Springs is indeed feeling the repercussions of an economic downturn in the stock market. Both the NASDAQ and Standard & Poors indices recently fell to their lowest points in two years.
“The business isn’t there,” said Gary Cuddeback, director of economic development for the city of Colorado Springs. “The money isn’t there for capital expansion. And business isn’t there because the economy is slowing down.”
Jeff Jensen, first vice president of investments at Salomon Smith Barney in Colorado Springs, concurs. “The stock market always overreacts. It’s like a giant pendulum. Right now, I think it’s too far to the left or way oversold.”
An example he offered was Oracle Corp., whose customer support center for database software products in the Springs employs 840 people. Oracle’s shares dropped from about $47 at this time last year to less than $16 Tuesday. Another technology giant, Cisco Systems, dropped from $82 a share to barely $19 a share.
“These companies are losing their market,” said Jensen,. “This causes companies to become leaner and meaner.”
This translates into layoffs, limited traveling and a slowdown of mergers and acquisitions, he said.
Intel Corp.’s media relations manager Deanna Sauceda agrees. The slowing economy has affected all companies at all levels, she said. Raises for top executives at Intel have been delayed and travel expenses and consultants’ fees shaved. The company will not replace up to 5,000 employees – less than 6 percent of its employee base – lost through attrition within the next nine to 12 months.
Local economist Dave Bamberger of Bamberger and Associates has seen the connection between what he calls the financial economy and the real economy. He said we are now seeing the financial side reflect worries about what is happening with the real economy. The real economy is a reflection of how Americans are living, based on spending habits. Demand for products has dropped, creating an excess of inventory that results in production layoffs. Profit levels aren’t as high and investors are worrying about returns.
“When equity values drop, people who own those equity investments don’t feel as affluent as before and have a tendency to cut back on spending, reinforcing lack of spending,” he said.
Bamberger said he believes that local businesses are, to some extent, insulated from what we are seeing at the national level. Slowdowns are geographical, he said. For example, automobile manufacturing companies in the Midwest and Southeast have seen large employee layoffs.
The Pikes Peak region has been feeling the pinch a little with some layoffs. About 600 people have been laid off from high-tech companies in the past few months compared with a total of 1,500 last year. The Springs usually averages about 2,000 layoffs per year, Bamberger said. Colorado Springs simply is not experiencing layoffs and shutdowns as much as other parts of the country, he said.
But one local company that is feeling the effects of the economic slump is WorldCom Inc., said Jensen. One year ago this month, it was listed at just below $44 per share. Now, shares sell for a little less than $18 each. Fourth-quarter earnings dropped 44 percent in 2000. Of the 6,000 cuts the company recently made worldwide, only 200 came from the local office of nearly 4,000 employees that serves as a call center and software development division.
Cuddeback is surprised at how much the stock market has plunged in the past 12 months. He said people are either dumping stocks or switching their portfolios around and investing in more stable funds.
Jensen has five recommendations for investors: diversify, invest in the long run, buy quality stocks, hold onto the stocks you have – even when the stock market drops, and buy more stocks if you can. The key to maintaining a portfolio, he said, is not to panic.
As an example, he is working on an investment portfolio now that was owned by a widow who began investing at the age of 60. After more than 30 years of investing, her investment grew from only a few hundred dollars to $5.3 million.
The Federal Reserve Board, led by Allan Greenspan, met Tuesday and agreed to lower the short-term federal funds interest rate – the rate banks charge each other for overnight loans – by 0.5 percent. This is the third such cut this year. The Fed also cut the discount rate 0.5 percent to 4.50 percent. This rate is what the central bank charges commercial banks to borrow money.
“That might stop the downward plunge and the economy might get back on track,” said Cuddeback.