Job losses signal that U.S. is in recession

McClatchy NewspapersOctober 3, 2008 

WASHINGTON — The strongest sign yet that the U.S. economy is in recession came in a Labor Department report Friday that employers had cut 159,000 jobs in September, twice as many as the average over the previous eight months.

That was the worst monthly job-loss report since March 2003. Combined with a stream of earlier data from declining factory orders to auto sales, it left analysts with no doubt that the economy is sinking fast.

"Previous monthly job losses averaged about 75,000 from January through August, so the September report shows clear evidence that we have taken another step down into a deepening recession," said Stuart Hoffman, chief economist for the PNC Financial Services Group.

"The employment report is just the latest in a series of indicators showing that the economy was deteriorating rapidly as the third quarter progressed," Nigel Gault, chief U.S. economist for forecaster Global Insight, said in a note to investors. "These include weak retail sales, weak auto sales, declining durable-goods orders, and . . . the economy was on the way down even before the latest tightening in the credit crunch."

October's job losses are sure to be worse given the widening financial crisis, which has banks unwilling to lend to many businesses and even to one another.

Despite the job losses, the unemployment rate held steady at 6.1 percent in September because tens of thousands of workers dropped out of the active labor force. The only sectors that increased jobs in September were health care and mining, adding 17,000 and 8,000, respectively.

The biggest losers were manufacturing, which dropped 51,000 jobs last month, and retail, which shed another 40,000 jobs, reflecting consumers' reluctance to spend. Construction employment fell by 35,000 jobs; that appears to be the start of a troubling trend, since the sector is especially vulnerable to the credit crunch, as contractors depend on credit to keep long-term projects operational.

"All types of construction shed workers in September, following an uptick in nonresidential hiring in August," said Ken Simonson, chief economist for Associated General Contractors of America, the trade group for developers and big construction firms. "Another ominous sign is that architectural and engineering services employment _a harbinger of demand for future construction _rose until recently, but stalled this summer and fell in September."

Anecdotal evidence is piling up that businesses are laying off workers because they can't access financing amid the banking turmoil. Simonson's group publishes a digest in which members from far and wide share what's happening without divulging their names.

One contractor in Massachusetts wrote that "within the last two weeks we have had a $1.2 million restaurant project and a $5.8 million hotel project put on hold, which for us is basically canceled. Not fun. I am sure we are not alone."

Another in Portland, Ore., Walsh Construction Co., saw a bank suddenly pull the plug on an $11.5 million building project. "The owner is seeking funding from a different bank and anticipates a six-eight week delay," the company said.

On Thursday, California Treasurer Bill Lockyer said the credit crunch threatened the ability of the nation's most populous state to issue bonds to build highways and carry out other public works projects. Republican Gov. Arnold Schwarzenegger said Friday that he'd try to sell $7 billion in state bonds soon, and that if the freeze in the credit markets didn't thaw he might ask the federal government for a loan of that amount.

"State governments from California to Maine have been shut out of the bond market, while developers have had bank credit windows slammed shut on their fingers as they reached for their loans," Simonson said.

Commerce Secretary Carlos Gutierrez, in an interview with McClatchy, expressed disappointment in the numbers and expected the credit crisis to continue to hit employers hard.

"There are already small businesses that are having trouble," he said. He voiced hope that the Bush administration's controversial $700 billion banking-rescue package, which cleared Congress on Friday, may help ease the uncertainty that's hanging over the financial sector.

Coming a month before the presidential election, the dismal jobs numbers were instant campaign themes.

Republican nominee John McCain, who said last month that the fundamentals of the U.S. economy were strong, said Friday in a statement that the jobs report "confirms what America's working men and women have understood for months: Our nation's economy is on the wrong track."

His rival, Democrat Barack Obama, used the report to try to associate the Arizona senator with the current Republican administration, on whose watch the jobs deterioration is occurring.

"With three-quarters of a million jobs lost this year, and millions of families struggling to pay the bills and stay in their homes, this country can't afford Senator McCain's plan to give America four more years of the same policies that have devastated our middle class and our economy for the last eight," the Illinois senator said in a statement.

Troubling indicators continued in September's somber jobs report. The number of long-term employed — 27 weeks or more — rose by 167,000 to 2 million. That's an increase of 728,000 over the past 12 months. It means that one in five unemployed workers has been jobless for about seven months or more.

Also, the number of people who are working part time for economic reasons rather than choice jumped by 337,000 to 6.1 million in September, an increase of 1.6 million over the past 12 months and a reflection of hard times on Main Street. These workers were forced into part-time jobs because their hours were cut or they couldn't find full-time work.

ON THE WEB:

The Bureau of Labor Statistics report

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McClatchy Newspapers 2008

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