This should be a great time for the book world.

Harry Potter and the Order of the Phoenix (searchhas set sales records. Hillary Clinton's (searchmemoirs, Living History, has sold more than 1 million copies. Other recent successes include Oprah Winfrey's book club pick, East of Eden, and Walter Isaacson's Benjamin Franklin.

But instead of celebrating, publishers have been cutting. Scholastic, Inc., the U.S. publisher of the Potter books, announced in May that 400 employees had been fired worldwide and said that in mid-July there would be additional spending reductions. Simon & Schuster (search), which released both the Clinton and Isaacson books, announced this week that 75 employees would be laid off.

"... the fact remains that our industry continues to be challenged by any number of issues, including the most prolonged period of depressed sales in memory," Simon & Schuster CEO Jack Romanos (searchwrote in a companywide e-mail.

For publishing people, the value of books like Living History and Order of the Phoenix isn't only in the splash, but in the ripples. The industry had hoped the Potter boom would carry over to other titles, but most report either modest increases or none at all. Once the boom receded, fundamental problems remained: a slow economy, a distracted public.

"It's not a brand new day," says Laurie Brown, a vice president for sales at Harcourt Trade Publishers. "I would guess you'll find universally cautious positions on sales figures and marketing budgets."

"It's harder for books to catch on," says Gary Fisketjon, a longtime editor at Alfred A. Knopf (search).

"I think the slump probably started in the (2000) presidential election that wouldn't end. And that spring (2001) was the dot.com crash. Then you have Sept. 11 and a constant war footing ever since. People are just preoccupied in all sorts of ways."

Big sales don't necessarily mean big profits, especially if everyone is expecting a hit. With Clinton receiving an $8 million advance, Simon & Schuster needed hundreds of thousands of sales to make money on the book. And Amazon.com, anticipating tremendous competition for the Potter book, offered a 40 percent discount on the $29.99 suggested price.

The result: Despite more than 1 million sales worldwide, the online retailer announced it essentially broke even with Order of the Phoenix.

With more than 100,000 titles annually released in the United States, the industry doesn't sustain itself on high-profile books alone. It also needs steady sales of older titles and surprise hits like Alice Sebold's million-selling novel, The Lovely Bones.

Sebold's book, published a year ago, was the literary event of 2002 and cost a fraction of the Clinton book to produce. But more than halfway into 2003, no new literary novel has had any significant impact, despite books from Robert Stone, Norman Rush, Don DeLillo and Jane Smiley.

"The fiction market in general has been very sluggish," says Jonathan Galassi, president and publisher of Farrar, Straus & Giroux. "I don't think there has been a book this year that really took the world by storm. That's what it takes, something that lights people up."

Publishers are already experimenting with cutting hardcover prices, or skipping hardcover altogether and releasing books in cheaper paperback editions. Hyperion Books this fall will publish Lisa Kusel's story collection, "Other Fish in the Sea," as a paperback. For an illustrated edition of the best-selling "Seabiscuit," now a movie, Random House reduced the price from $35 to $29.95.

In his company e-mail, Simon & Schuster's Romanos speculated that the decline was long-term, wondering if "book buyers will actually return in the same numbers" even after the economy recovers. Other publishing officials are at best cautious about the next few months.

While sales should be strong for the memoirs of former Secretary of State Madeline Albright and Toni Morrison's new novel, "Love," no fall releases are likely to sell in numbers approaching Potter.

"I have as strong a list of books coming out over the next few months as I've had in a long time, but I'm not 100 percent confident it's going to translate into sales," says Morgan Entrekin, president and publisher of Grove/Atlantic, Inc.

"I've been talking to the agent of one of my more important authors, a solid literary novelist. I had to tell the agent that I couldn't pay his client as much as I did before. It's a hard conversation to have."