The Incredible Shrinking U.S. Job Market
The Incredible Shrinking U.S. Job Market
Carl Gutierrez and Maurna Desmond, 02.08.09, 12:00 AM ET
U.S. joblessness is at its worst level in decades, and further deterioration is in the cards.
The Labor Department reported Friday that 598,000 private sector jobs were lost in January, pushing the unemployment rate to 7.6%, up from 7.2% in December. (See "U.S. Jobs Hemorrhage In '08.") Economists had expected only 540,000 jobs would be eliminated, with an unemployment rate to 7.5%.
The amount of Americans out of work will probably grow. The labor market lags behind economic output, and with the U.S. economy widely expected to contract in the first half of the year, the unemployment rate could reach 9.0%. Even with the best-case scenario of an economic turnaround in the second half of 2009, the labor market wouldn't see an improvement at least until the end of the year.
"It's going to get worse before it gets worse," said Doug Roberts, chief investment strategist for Channel Capital Research.com.
The massive jobless figure actually led to significant market gains Friday, as investors bet the shock would move Congress into passing President Barack Obama's economic stimulus package.
Mark King, chief investment officer for Bell Investment Advisors, said it would take a double-digit employment rate to provoke a decline in stocks, indicating that Wall Street has already built a lot of pessimism into stock prices.
U.S. Treasury bonds, on the other hand, fell sharply, as bond investors expected the data to lead to massive government debt issuance, an inevitable consequence of federal bailout and stimulus plans that investors seem to have overlooked until the past few weeks. The bellwether 10-year Treasury note's decline raised its yield to 2.99% from 2.90% on Thursday and up from 2.08% late last year.
December job losses were revised to 577,000, from 524,000. More than 11.6 million Americans are now unemployed, and since December 2007, 3.6 million jobs have been lost, about half in the final three months of 2008.
The speed and scale of the January layoffs were staggering. In the past week alone, Macy's laid off 7,000, Eastman Kodak announced 4,500 job cuts and Starbucks let go of 6,700 workers, to name only a few as payroll cuts were made throughout sectors and industries. The only exceptions in the January data were education, health and government jobs.
"Businesses are rushing to cut as rapidly as possible and the more they cut now, the less we will see being cut three or four months down the road. They are shortening the adjustment period," said Joel Naroff, an economist at Naroff Advisers. In fact, the job losses did slow a bit in the opening week of February. (See "The Weekly Layoff Report: Feb. 6, 2009.")
The massive job loss in the United States has led to a vicious cycle of spending cuts. "Consumers will continue to pull back on spending, and become more cautious given the negative job outlook," said Terrin Griffiths, an economist with the California Credit Union League, "and this contributes to the lack of business spending, which results in more job losses."
That cycle has already caused the U.S. gross domestic product to fall at the fastest clip in more than 20 years during the final quarter of 2008, as businesses and consumers react to the spasms of a deepening credit crisis and the housing quagmire that sparked it. (See "U.S., Data Point Down.")
President Barack Obama has reacted aggressively to surging unemployment with an approximately $900.0 billion economic stimulus package that now awaits Senate approval.
Thing is, there's little it could for jobs in the near-term if was even passed today. "Based on what the package looks like now, as much as two-thirds wouldn't hit until next year, or the year after," Roberts said. "That leaves one-third as a short-term stability bill, but the question is how much of that initial third would be productive."
The so-called "bridges to nowhere" and other projects billed as "shovel-ready" that may not foster meaningful economic growth. "I don't write off the bill at once. I have some hope for it, but people have to believe. I think we'll get something from the stimulus package, but it's going to take awhile," said Naroff.
The grim government data do not include the growing group of Americans who have given up on finding a job or who cannot land a full-time position and so settle for something part time instead. The number of workers considered underemployed in the United States "has been shooting through the roof," according to Michael Feroli, an economist at JP Morgan Chase. "Underutilization in the labor force is worse than it seems, and it seems pretty bad."
Among the unemployed, the number who ended up with temporary jobs increased to 7.0 million in January. This measure has grown by 3.2 million during the past year.