Saturday, December 6, 2008
Monthly loss of jobs worst in 34 years
The recession deepened dramatically in November as U.S. companies slashed 533,000 jobs from their payrolls during the month. It was the largest monthly drop since December 1974, the Labor Department reported Friday.
The report set the stage for a massive fiscal stimulus package from the incoming Obama administration, analysts said.
The unemployment rate jumped from 6.5 percent to 6.7 percent, the highest jobless rate in more than 15 years. Goldman Sachs predicts unemployment will hit 9 percent by the end of next year.
The Labor Department also revised previously reported job losses for September and October, increasing them by a total of 199,000.
Following payroll cuts of 403,000 jobs in September and 320,000 jobs in October, the economy has now shed 1.26 million jobs during the past three months.
"It is clear this economy is now deteriorating with frightening speed and ferocity," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "The numbers are truly horrific --
The bursting of the housing bubble has resulted in millions of mortgage defaults, which generated more than $650 billion in losses so far for commercial and investment banks. Housing prices continue to fall at an accelerating rate, jeopardizing more mortgages and resulting in more foreclosures and greater losses for banks and investors.
Nouriel Roubini, a New York University economist who predicted the bursting of housing bubble and the resulting crises in the financial and credit markets, estimates that credit losses resulting from the housing meltdown will exceed $2 trillion.
Ten percent of American homeowners during the third quarter were either delinquent by 30 days or more on their mortgage payments (6.99 percent) or had already entered foreclosure (2.97 percent), the Mortgage Bankers Association said in a report issued Friday. Both were records in a survey that is nearly 30 years old.
The U.S. recession, as Mr. Roubini predicted more than a year ago, clearly has gotten much worse in recent months.
"A very ugly set of numbers tells us that the job market has collapsed in the last three months," said Stuart Hoffman, chief economist of PNC Financial Services Group in Pittsburgh. "The economy has become a whirlpool that is sucking down everything from the job market to the stock market."
Employment fell for the 11th month in a row. But November's payroll plunge far exceeded the expectations of economists.
November's job losses and the September and October revisions were "much worse than were expected and represent wholesale capitulation. The threat of widespread depression is now real and present," said Peter Morici, a business professor at the University of Maryland.
Mr. Morici took issue with the reported jobless rate of 6.7 percent in November. "Factoring in discouraged workers, unemployment is closer to 8.7 percent," he said. "Add in part-time positions that cannot find full-time employment, and the hidden unemployment rate is nearly 13 percent," which he expects will eventually approach 20 percent.
The private sector has lost 2.12 million jobs so far this year, while the government sector has added 211,000 jobs. Government payrolls, which expanded by 7,000 workers in November, have declined only one month (September) this year.
Earlier this week, the National Bureau of Economic Research (NBER), the official arbiter of the business cycle, announced that the U.S. economy entered a recession last December. The NBER said the plunge in payroll jobs proved to be the most important statistic in its conclusion that the recession began a year ago.
Job losses in November were as widespread as they were deep.
The Labor Department reported that manufacturing employment declined for the 30th consecutive month as the chief executive officers of General Motors, Ford and Chrysler testified before Congress for a second day, seeking $34 billion in loans. Manufacturing, which shed 85,000 jobs in November, has lost more than 1 million jobs during the past 30 months.
Construction jobs, which have declined by more than 700,000 since June 2007, fell by 82,000 in November. It was by far the largest drop in any of the 17 consecutive months that construction employment has fallen.
Employment in service industries contracted by a startling 370,000 jobs in November. The retail trade sector lost 91,000 workers. There were 136,000 fewer employees laboring in professional and business services. The leisure and hospitality sector lost 76,000 jobs.
In a development that has no precedent, service industries have lost more than 800,000 jobs in the past three months.
November's employment data and other indicators reveal that the economy has deteriorated significantly during the current quarter.
With consumer spending slumping in October by the most in seven years, consumer credit fell by $3.5 billion that month, the Federal Reserve reported Friday. Much of the decline related to a collapse in auto sales, which continued in November.
Retail sales in November were the weakest in more than 35 years, according to the International Council of Shopping Centers, an industry group.
The Federal Reserve's Beige Book, a compendium of economic conditions across the country, revealed this week that nearly every one of central bank's 12 regional districts reported softening labor and real estate markets, declining sales, falling manufacturing and tighter credit conditions.
After declining 0.3 percent during the third quarter, U.S. gross domestic product in the fourth quarter is expected to plummet by "at least 5 percent, perhaps more," according to the economic forecast by IHS Global Insight.
"The economy is now locked in a vicious downward spiral in which employment, incomes and spending are collapsing together," said Nigel Gault, chief U.S. economist at IHS Global Insight. "Today's news sharply increases the pressure on the incoming Obama administration to devise a massive fiscal stimulus package - not to kick-start growth but just to arrest the decline."