Sunday, April 05, 2009

US Employment Picture Bleak

The U.S. may suffer further job losses in the coming months after employers cut payrolls by 633,000 in March and the unemployment rate jumped to a 25-year high of 8.5 percent.

A host of companies -- from manufacturers such as Johnson Controls Inc. and Dana Holding Corp. to service providers like International Business Machines Corp. and even the U.S. Postal Service -- have announced plans to eliminate jobs in the face of depressed demand from their customers.

“We expect labor-market conditions to remain appalling for many months to come,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, wrote in a client note following yesterday’s report from the Labor Department.

The risk is that a continued hemorrhaging of jobs triggers another round of spending cuts by consumers, pushing the economy deeper into a recession just as it is showing signs of steadying after plunging in the fourth quarter.

“We are not out of the woods yet,” Federal Reserve Vice Chairman Donald Kohn said in a speech in Wooster, Ohio, yesterday. He added that the central bank and administration of President Barack Obama must remain “flexible and open” to taking further measures to help the economy.

Stocks rose yesterday for a fourth day as Fed Chairman Ben S. Bernanke said measures to unfreeze credit markets were working. The Standard & Poor’s 500 index climbed 8.1 points, or 1 percent, to close at 842.5. Treasuries fell on growing concern over the amount of borrowing needed to finance the budget deficit, pushing the yield on the 10-year note to 2.90 percent at yesterday’s close, up from 2.77 percent the previous day.

Total Losses

Since the recession began in December 2007, the economy has lost about 5.1 million jobs, the worst in the postwar era, Labor Department figures released yesterday in Washington showed. Some 3.3 million have been cut in the last five months, including 651,000 in February, when the jobless rate was 8.1 percent.

The job losses have been widespread, though they have been particularly large in manufacturing, construction and temporary- help services. Those three industries have accounted for nearly two-thirds of the jobs eliminated during the recession.

“In the past, businesses seemed to show a bit of caution in their payroll reductions,” said Joel Naroff, president of Naroff Economics in Holland, Pennsylvania, and Bloomberg’s best economic forecaster for 2008. “Now, the philosophy seems to be cut massively now and ask questions about whether too much has been done later.”

Protracted Slump

Companies in such industries as automobiles and home building may be more aggressive in paring payrolls because they don’t expect demand to recover anytime soon, said Vincent Reinhart, a former Fed official now at the American Enterprise Institute in Washington.

Yesterday’s report showed factory payrolls fell by 161,000 in March after dropping 169,000 in February. The decrease included a loss of 17,500 jobs in auto manufacturing and parts industries.

There were signs last week that the worst of the recession may have passed for some areas of the economy, as reports showed improvements in manufacturing and housing, the industries in steepest decline.

The Institute for Supply Management’s factory index climbed to 36.3 in March, a third consecutive increase that brought it closer to the breakeven point of 50. The number of contracts to buy existing homes in February rose 2.1 percent, according to the National Association of Realtors. Also, consumer purchases advanced for a second straight month in February, the Commerce Department said March 27.

Auto Industry

Still, the manufacturing slump that began more than a year ago may intensify should General Motors Corp. be forced into bankruptcy, economists said. As many as 1 million additional auto-industry jobs may be lost and unemployment would climb to 11 percent, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.

The auto slump has already rippled through the industry. Johnson Controls, a maker of car interiors and batteries, said last month it will shut 10 factories and cut about 4,000 jobs. Dana, the truck-axle manufacturer that exited bankruptcy in 2008, said it will boost its payroll reduction to 5,800 this year, 800 more than previously announced.

“We are taking the difficult actions necessary to survive,” Dana’s Chief Executive Officer John Devine said in a March 16 statement.

Service industries, which include banks, insurance companies, restaurants and retailers, cut 358,000 workers after a 366,000 decline in February. Financial firms cut payrolls by 43,000, after a 44,000 decrease the prior month. Retail payrolls decreased by 47,800 after a 50,800 drop.

In addition to cutting jobs, companies also reduced hours for those still on payrolls. The average number of hours worked fell to 33.2 per week, down six minutes from February and the lowest since records began in 1964.

Source - Bloomberg


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