North Carolina's economy was hit with a one-two punch yesterday.
About the same time that the N.C. Employment Security Commission reported that the state's jobless rate hit a 26-year high of 9.7 percent in January, Dell Inc. confirmed that it had made its first major job cut at its plant in Forsyth County.
"A 9.7 percent unemployment rate is bad," said Robert Whaples, an economics professor at Wake Forest University. "But given the momentum of the economy and continued rounds of job cuts, I expect it to get noticeably worse before it gets better."
Along with Dell, the Triad hasn't fully absorbed the blows from at least 11 major layoffs affecting more than 3,300 workers. Questions also remain about how many of Wachovia Corp.'s 2,900 local jobs will be cut or transferred as Wells Fargo & Co. merges bank operations over the next two years.
"Anyone's attempt to give an exact figure and/or turnaround date will only be a guess," Whaples said.
A spokesman for Dell, David Frink, declined to say how many jobs had been cut at the local plant that the company opened with great fanfare in October 2005. Jobs also were cut in central Texas and Tennessee.
"We have been streamlining our operations for more than a year, and said as recently as two weeks ago that we continue do so," Frink said. "This is our effort to remain competitive during a time of broad weakness in the global economy."
An employee who was affected by the reduction told the Winston-Salem Journal that he knew of at least 30 production workers and managers that had been let go, and the talk was that between 150 to 300 employees were being fired. The employee declined to be identified to avoid jeopardizing his severance package.
The Dell job cut has been expected, and dreaded, since The Wall Street Journal reported in September that the company may be considering selling some or all of its manufacturing plants to cut expenses.
Since then, Dell has reduced production at its plant in Nashville in recent months and closed a plant in Limerick, Ireland, and shifted production to a new, lower-production cost plant in Lodz, Poland.
"Those who didn't get laid off today likely will be by early next year," the employee said.
Several economists warned that while the 1.6-percentage-point increase in the state jobless rate from December may not be repeated, the rate is certain to go much higher this year.
The 9.7 percent rate represents almost a doubling of the state's jobless rate of 5 percent in January 2008. Larry Parker, a spokesman for the commission, said that the highest rate in recent state history was 10.2 percent in March 1983. State records only go back to 1976.
The January rate rose sharply in part because the commission revised the December rate downward from 8.7 percent as part of its annual recalculation of how it measures employment data. The benchmarking is required to meet federal guidelines.
The rate increase also further distances the state from the national jobless rate of 7.6 percent. Historically, the state unemployment rate has been below the national rate.
According to the revised numbers, the total nonfarm work force in North Carolina declined by 38,000 jobs from December to January.
The state lost 11,500 manufacturing jobs, 10,300 construction jobs and 5,800 educational and health-services jobs in January. The only sectors to post a net gain in jobs were financial activities (1,200) and professional and business services (500).
"This is a bad report, however you cut it," said Michael Walden, an economics professor at N.C. State University. "The recession is well entrenched in North Carolina.
"It's a certainty the (unemployment) rate will be over 10 percent before summer, and may reach as high as 14 percent next year before improvement is seen," Walden said. "The jump in the jobless rate doesn't bode well for the state budget, as it signals further decreases in state tax receipts."
When Dell announced in December 2004 that it had selected Forsyth for its new plant, local officials beamed with pride over the economic shot-in-the-arm and the national spotlight they had just landed.
Dell had about 1,150 employees at its local $115 million plant, where it assembles desktop computers for business and individual customers. Dell did cut as many as 115 contract workers in early November as part of its decision to end a weekend shift that it had started last May.
The local plant and its employees are on the wrong side of an industrywide trend toward slowing sales of desktop computers and surging notebook sales as the price of notebook computers continues to fall. Dell has said repeatedly, including Frink yesterday, that it has no plans to assemble notebooks at the Forsyth County plant, citing much lower production costs overseas.
"Given the economy and the slowdown in computer sales worldwide, this announcement is not a surprise," said Gayle Anderson, the chief executive and president of the Greater Winston-Salem Chamber of Commerce.
"We understand that employers must make these difficult decisions to remain viable competitors in the global market, and we hope that as the economy turns around we will see our local industries begin to hire again," Anderson said.
Dell is eligible for up to $37 million in local incentives and up to $268 million in state incentives if it complies with its requirements between 2005 and 2020.
Dell received more than $6.5 million in incentives from the city of Winston-Salem for its first two years of local operations, and nearly $1.2 million in incentives from Forsyth County, according to city and county economic officials.
Derwick Paige, the deputy city manager, said that if Dell were to sell or close the plant before October 2010, it would trigger a claw-back clause in the incentive deal. Dell would have to pay back all of the upfront incentives and the incentives that it received since the plant opened.
If Dell were to sell or close the plant between October 2010 and October 2015, it would have to pay back half or less of the incentive monies on a prorated basis.
Dell has received about $1.5 million from the state Job Development Investment Grant, as well as more than $2 million from the N.C. Department of Revenue and more than $80,000 from the William S. Lee Act.
Dell met its full local and state incentive requirements for employment and capital investment in 2006 and 2007. However, Dell was not in compliance in 2008 with state requirements of having a minimum of 1,463 full-time employees.
John Hood, the president of the John Locke Foundation in Raleigh, has been a vocal opponent of corporate incentives, particularly involving Dell.
Hood said that the latest production possibilities for Dell "underlines why it is unwise for governments to base their fiscal policies around the predicted futures of single companies."
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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