Vanishing Jobs, Stressed Consumers Feed Downturn
The nation's unemployment rate is at a 14-year high, General Motors reported a massive third-quarter loss and says it may run out of cash next year, and Ford is planning more job cuts after burning through billions of its own.
The evidence continues to roll in that the U.S. economy is in a recession.
Another 240,000 jobs were cut last month as the jobless rate zoomed to 6.5 percent from 6.1 percent in September, the Labor Department said Friday. Last month's rate matched the reading from March 1994.
Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.
Meanwhile, GM said it lost $2.5 billion in the third quarter and warned that it could run out of cash in 2009. The automaker also said it has suspended talks to acquire Chrysler, and that its cash burn for the quarter accelerated to $6.9 billion due to the severe U.S. auto sales slump.
Ford Motor provided further evidence of the weakening economy, saying it plans to cut about 2,260 more jobs and that it burned through $7.7 billion in cash in the third quarter.
October's decline marked the 10th straight month of payroll reductions, and government revisions showed that job losses in August and September turned out to be much deeper. Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.
So far this year, a staggering 1.2 million jobs have disappeared.
Ford said it lost $129 million in the third quarter and went through $7.7 billion in cash. The company said it will cut another 10 percent of its North American salaried work force costs as it tries to weather the worst economic downturn in decades.
Racing to assemble his new Democratic Cabinet, President-elect Barack Obama will huddle with economic advisers later on Friday. His team has been in close contact with the Bush administration to pave the way for a smooth hand-off of power.
On the crucial jobs front, the situation is likely to move from bad to worse next year. Many expect the jobless rate to climb to 8 percent, possibly higher, next year. In the 1980-1982 recession, the unemployment rate rose as high as 10.8 percent before inching down.
Stressed consumers are cutting back on their shopping and trying to trim their debt. Economists believe consumers cut back on borrowing in September, as another report to be released Friday is expected to show.
Nearly half a million Americans filed new claims for unemployment benefits in the last week alone, and skittish shoppers handed many retailers their weakest sales since 1969, government reports out Thursday showed.
The Labor Department said new filings for jobless benefits clocked in at 481,000, a dip from the previous week but a still-elevated level that suggests companies are resorting to big layoffs to cope with the economy's downturn.
Hartford Financial Services Group , Circuit City Stores , drug maker GlaxoSmithKline , chip maker Advanced Micro Devices , auto parts maker Dana Holding , cable operators Comcast and Cox Communications and Fidelity Investments are among the companies that recently have announced layoffs.
To provide fresh relief, House Speaker Nancy Pelosi said Democrats, in a lame-duck session later this month, would push to enact another round of economic stimulus to provide more relief, which could include extending jobless benefits.
A $168 billion package, including tax rebates for people and tax breaks for businesses, was rolled out earlier this year. Short of a package of $100 billion or more, the House could press the Senate to pass a smaller $61 billion measure that would bankroll public works projects to help generate new jobs and would extend unemployment benefits.
Companies are begging for help, too. The leaders of General Motors, Ford and Chrysler and the president of the United Auto Workers union came to Capitol Hill to discuss billions of dollars more in financial help.
Reeling from layoffs and watching their wealth shrink as home values and nest eggs have been clobbered, shoppers turned extra frugal last month and sent sales at many retailers down sharply.
Michael P. Niemira, chief economist at the International Council of Shopping Centers, summed up the situation as "awful."
According to the ICSC-Goldman Sachs index, sales fell 1 percent, the weakest October performance since at least 1969 when the index began.
Target and Costco were among the many retailers reporting sales declines last month. Even teens stayed away from malls. American Eagle Outfitters and Abercrombie & Fitch reported drops in sales. But Wal-Mart Stores , the world's largest retailer, logged a sales gain as shoppers hunted for bargains.
The Federal Reserve ratcheted down interest rates last week to 1 percent and left the door open to further reductions in a bid to prevent a drawn out recession in the United States.
The country's economic state has rapidly deteriorated in just a few months. The economy contracted at a 0.3 percent pace in the July-September quarter, signaling the onset of a likely recession. It was the worst showing since 2001 recession, and reflected a massive pullback by consumers.
As U.S. consumers watch jobs disappear, they'll probably retrench even further.
That's why analysts predict the economy is still shrinking in the current October-December quarter and will contract further in the first quarter of next year. All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity.