The U.S. economy is bleeding jobs faster than it has since the early 1980s, and perhaps since the mid-'70s. Economic forecasters are now projecting that on Dec. 5, the government will announce the loss of more than 300,000 jobs in November -- possibly more than 400,000.
December is shaping up to be a bad month as well. The rate of layoffs should slow next year as economic stimulus begins to kick in, but modest monthly declines could continue well into 2010. "Let's get real. These numbers are horrible," says Ellen Zentner, senior U.S. economist for Bank of Tokyo-Mitsubishi UFJ in New York.
A burst of negative statistics from purchasing managers and other sources has caused economists to darken their outlooks in the past few days. The median forecast in a Bloomberg survey as of Dec. 3 was a decline of 330,000 in nonfarm payrolls in November, but that included many forecasts that had not been updated to reflect the latest spate of bad news. The most recent projections are among the gloomiest, ranging as high as 470,000 in job losses.
These statistics are far worse than anything felt in the past two recessions, in 1990-91 and 2001. For comparison, the U.S. economy lost 431,000 jobs in May 1980, which was the worst month of the back-to-back recessions of 1980-82. If it's any comfort, November is highly unlikely to be worse than the recession month of December 1974, when the economy lost a staggering 602,000 jobs, according to the Bureau of Labor Statistics.
Shoppers Have Dropped
One factor that will most likely account for a big share of the job loss is the tepid shopping season. The government's seasonal adjustment attempts to filter out ups and downs in employment caused by seasonal factors like holiday shopping. So when retailers ramp up employment less than they have in the past, it shows up as an outright employment decline in the seasonally adjusted data, notes Bank of Tokyo's Zentner.
Zentner has one of the most bearish outlooks among Wall Street economists, predicting a decline of 470,000 jobs in November. Some others aren't far behind. Deutsche Bank Securities predicts a decline of 425,000 jobs, while National City is at 418,000 and ING Financial Markets is at 400,000. "Things in this quarter look downright ugly," says Torsten Slok, a Deutsche economist in New York.
Economists marked down their forecasts after getting two key reports from the Institute for Supply Management, a group of purchasing managers. Their employment index for the service sector issued on Dec. 3 was the lowest since its 1997 inception, while its manufacturing employment index issued on Dec. 1 was back to the levels of the 1990-91 recession. Another bearish signal was a report on initial claims for unemployment insurance, which hit 543,000 the week of Nov. 14, which is the week the survey of November employment is conducted. That claims figure is consistent with a monthly job loss of well over 300,000.
While December is a lost cause, 2009 could start to look better as interest rate cuts and other government pump-priming measures start to work. Zentner says the measures "could go very far in pulling the economy out of its current slump." But she notes that employment is a lagging indicator, meaning that even if economic output starts growing again, job rolls could continue to shrink. Case in point: Even though the last recession technically ended in November 2001, the economy was still losing jobs as late as August 2003.
The interval between the November Presidential election and the inauguration in January is particularly dangerous, says Deutsche's Slok, because the economy isn't getting as much stimulus as it needs in the power vacuum. Says Slok: "A policy response is becoming more and more urgent."
Peter Coy is BusinessWeek's Economics editor.
Reprinted from the Dec. 4, 2008 edition of BusinessWeek.com by special permission
Copyright 2008 by The McGraw-Hill Companies