Retail booms while IT busts.

The manufacturing industry is in recession, the technology sector is shedding thousands of jobs every day, but consumers still appear to be surprisingly unconcerned. Charlotte Parry considers the rise of a two-tier economy

Over the past three months the telecommunications sector has shed almost a quarter of a million jobs. Telecom firms such as NTL and BT, and equipment manufacturers Alcatel and Lucent have all been affected. Technology firms have also suffered. Computer manufacturer Hewlett Packard cut 6,000 jobs following a 14 per cent revenue decline, electronics company Philips is axing up to 25,000 workers, and engineering group Invensys is shedding 6,000 jobs.

Nearly half of all profit warnings were in the high-tech sector, according to Ernst and Young's quarterly analysis of profit warnings.

The ripple effect has meant that investment banks are cutting back -- to the tune of 25,000 so far this year. They blame the downturn in capital market activities following the fall in stock prices for technology and telecommunications firms.

This ripple effect will spread further, said Dave Harris, managing director of credit management firm Tallyman. "If big technology companies go under, the effect of bad debt and lost orders on their suppliers can be disastrous," he said.

Corporate debt is now greater than at the height of the last recession, according to the Bank of England. This could trigger spending cuts and so increase job losses and slow the economy, if profits fail to hold up.

Manufacturing is also in the doldrums. "Small and medium-sized enterprise (SME) manufacturers are facing pressure from the global slowdown," said Simon Bartley, vice-chair of the CBI's SME council. "They continue to experience falling orders whether they supply larger UK manufacturers or US and international companies."

Company insolvencies were at their highest level for over six years in the second quarter of this year, according to the Department of Trade and Industry. Almost 4,000 companies became insolvent between April and June, a rise of 9.3 per cent on the same period an year ago.

But the crisis has not yet hit the high street. Retail traffic has increased by 2 per cent since last year, according to retail analyst Solution Product Systems. The BRC-KPMG retail sales monitor showed a 6 per cent year-on-year increase in July. Payment card spending totalled 16.5 billion [pounds sterling] during June, a 19 per cent rise on the previous year. The housing market is also surging. Mortgage borrowing rose 4.26 billion [pounds sterling] in June -- 8.5 per cent on the year.

"This is further evidence of a two-tier economy, where consumer spending continues to grow but there is a sharp slowdown in the rest of the economy, particularly in manufacturing," said economist Dr David Denton. "But many of these job cuts have only just been announced. Once they take effect and unemployment rises, the recession will hit consumer spending."

Harris agrees. Consumer debt stands at 690 billion [pounds sterling] and, according to a Tallyman survey, will increase by 30 per cent in the next year. "The credit management industry is preparing for a downturn," he said. "Firms need to protect themselves against bad debt. Whether they manage debt well or ignore it could be the difference between surviving and going under in a recession. Catch bad debtors early, treat them appropriately and get a dialogue going," he advised.