Latest News

New jobs numbers suggest economy is in free fall

WASHINGTON — With employers shedding 524,000 jobs in December for a total of more than 2.6 million in all of 2008, economists think that as bad as Friday's jobs report from the government was, it only points to further deterioration in the months ahead.

In the clearest sign yet that the U.S. recession is worsening, the Labor Department said December's unemployment rate leapt half a percentage point to 7.2 percent. That's the highest it's been since January 1993, and it was up by much more than expected over November's rate of 6.7 percent.

"It's very disappointing, though not unexpected. We were all expecting a bad number," said Commerce Secretary Carlos Gutierrez, who did little to sugarcoat the bleak numbers. "We continue to believe we're going to go through a difficult several months."

Friday's jobs report may mask what were even larger losses than reported. Several state employment offices saw their computer systems crash in December because of the soaring number of people who were seeking jobless benefits. This may have resulted in a number that looks lower than it really is. The job losses could very well be revised upward next month when the Bureau of Labor Statistics reports January job data.

That's what happened Friday, when the agency revised its employment reports from October and November, noting that job losses in those months were worse than first reported. Employers rid themselves of 423,000 jobs in October, not the originally reported 320,000, and 584,000 positions in November, not the 533,000 first reported by the BLS.

It all adds up to a much higher unemployment rate in coming months.

"I think we're looking at 9 percent before this peaks out next year. We think this will continue to run up until early 2010," said David Wyss, chief economist of rating agency Standard & Poor's in New York. "You look at this report and everything is negative."

While the steep jump in unemployment grabbed the headlines, there was more troubling news buried deeper in the jobs report. The BLS said that the average hourly workweek for production and nonsupervisory jobs had shrunk 0.2 percent to 33.3 hours. That marks the lowest that this number has registered since the government started compiling these statistics in 1964.

"The message in the decline in hours worked to a record low is that more big job losses are coming," said Mark Zandi, chief economist of Moody's, a forecaster in West Chester, Pa. "Employers first cut their employees' hours and then their jobs if business doesn't quickly improve."

It's hard to see how business conditions will improve anytime soon. Retailers on Thursday reported dreadful same-store sales and even the industry leader, Wal-Mart Stores Inc., missed analysts' projections for holiday sales.

In a report released Friday, the National Federation of Independent Business, which represents smaller retailers and restaurants, said 2008 would go down as the year that consumers, who in good times drive two-thirds of economic activity, went missing.

"Revenue declines were widespread, as were reports of profit declines. The only major cost a small firm can cut is labor cost. Retailers in particular were hoping to make their year in the fourth quarter. Didn't happen," William Dunkelberg, the group's chief economist, said in the report, adding that reports of job reduction hit an all-time high in the group's monthly survey of members.

The dismal reports gives new urgency to a massive economic-stimulus plan being prepared by President-elect Barack Obama and the Democrats who control Congress. The plan, which includes massive spending and tax cuts designed to spark consumption, is estimated to cost $775 billion to $1.3 trillion.

Obama said Friday that the jobs report made it clear that Congress must move swiftly on a stimulus plan.

"Behind each and every one of those millions of jobs lost there are workers and families who are counting on us as they struggle to pay the bills or stay in their homes," he said. "There is a devastating economic crisis that will become more and more difficult to contain with time. For the sake of our economy and our people, this is the moment to act, and to act without delay."

The jobs numbers point to an economy in near free fall. The BLS said that 1.9 million jobs had been lost in the final four months of 2008 and 1.5 million in the final quarter, the biggest quarterly loss of jobs since 1945. In all, 11.1 million Americans are classified as unemployed.

"In December, job losses were large and widespread across most major industry sectors," the BLS employment report said.

Manufacturers shed 149,000 jobs in December and 791,000 for all of last year. The biggest manufacturing losers were metal-makers and companies that make cars and car parts. Construction fell by 101,000 jobs in December and by 899,000 since its peak in September 2006.

Retailers dropped 67,000 positions in December and 522,000 last year, more than half of those jobs lost in the last four months of 2008. Warehousing and transport employment fell by 24,000 jobs in December, while the information industry lost 20,000 positions. Food services fell by 20,000 last month.

Only health care showed robust growth. The sector added 32,000 jobs in December and 372,000 positions last year.

"The decline in jobs across so many industries and occupations is disturbing. There is no safe place in the job market," Zandi said.

In another troubling indicator, the number of involuntary part-time workers, those who want to work full time but can't find such jobs, rose to 8 million in December and increased by 3.4 million for all of last year.

The number of long-term unemployed — those who've been jobless for 27 weeks or more — rose to 2.6 million in December and increased by 1.3 million for all of 2008. This number essentially doubled as many of the unemployed remained that way for much of the year.

The continued turmoil in employment deepens a vicious circle.

As more jobs are lost, that provokes a drop in consumers' spending. As consumer spending power wanes, consumer confidence plunges, the economy spirals downward and credit is harder to come by.

That's why the Federal Reserve is aggressively purchasing assets that are frozen in credit markets, hoping to ensure some measure of lending in the economy. The stimulus plan aims to make government both a consumer and an engine of economic activity.

"The government is stepping in to lend money to break the negative credit cycle and to spend money to break the negative consumption cycle. And that's probably necessary," Wyss said.


Bureau of Labor Statistics jobs report


To ask a question about this story or any economic question, go to McClatchy's economy Q&A

Here's a happy thought: Stimulus plan might not work

Citigroup agrees to let judges retool troubled mortgages

Era of hands-off business regulation may end with Obama