Jobs Outlook Darkens As Financial Crisis Grows
The worsening credit crisis is creating even more worry about the labor market outlook, and there was little consolation in the jobs report Friday.
All signs are pointing to further deterioration in the months ahead. The big question is how bad it will get and how quickly.
“I've been surprised that things aren’t worse given the nature of the financial crisis over the last 13 months,” says Stephen Davis, an employment expert and a professor at the University of Chicago’s Graduate School of Business. “The good news is that labor markets have proved quite resilient in the face of a major shock. The bad news is there is a long way to go down."
Friday's report on September employment illustrated that. Non-farm payrolls fell 159,000, much more than the consensus forecast of 105,000. That follows a 73,000-decline in August. The unemployment rate remained at 6.1 percent, a five-year high.
On Thursday, the government reported that weekly jobless claims rose to a seven-year high of 497,000, while the four-week moving average rose to 474,000. Continuing claims rose to a five-year high.
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The last deep—and industrial-oriented—US recession was in 1980, which claimed millions of jobs, sent unemployment to double-digit levels and dragged on for about two years.
Although Davis says the "the current state of the labor market and economy as a whole is nothing like the experience we had in the 1980s,” he adds that it’s too soon too tell if labor markets are headed in that direction.
There are some worrisome signs: the recent spike in weekly jobless claims, the number of mass layoffs and the downsizing of Wall Street.
David Resler, chief economist at Normura International, says there’s no denying the “underlying deterioration in the job market.”
He recently revised his worst-case scenario for the jobless rate in 2009 from 7 percent to 7.8 percent. That’s clearly recessionary territory. Payroll declines, thus far, have been less definitive, but are also expected to pick up.
September's decline—the biggest since March 2003—may be the beginning of that. It is the highest since payrolls started declining at the beginning of the year and approximates the average monthly loss of about 190,000 during the last recession.
Still, total losses asre still somewhat historically low. Based on revisions to July and August data, the economy has lost about 750,000 jobs since employment peaked in December 2007, which is when some say a recession began.
By contrast, during the 2001 recession, payrolls fell 1.63 million during the March-Nov 2001 period. They continued to fall for almost another two years, until 2.7 million jobs had been erased. (Payrolls did not regain their pre-recession peak until February 05.)
Given that the labor market lags the broader economic cycle, few doubt the worse is yet to come, especially as the credit crunch spreads to other parts of an economy, as it also appears to be suffering from a conventional cyclical downturn.
The Institute for Supply Management’s employment index plunged 41.8 from 49.7, with nine of the 12 industries reporting declines.