NEW YORK: Sluggish economic news confronting U.S. President-elect Barack Obama will grow on Friday with the government set to report a 10th straight month of job losses, likely driving job creation to the top of his must-do list. Few, if any, economists are under the illusion employment will avoid deep losses after data showed most...
NEW YORK: Sluggish economic news confronting U.S. President-elect Barack Obama will grow on Friday with the government set to report a 10th straight month of job losses, likely driving job creation to the top of his must-do list.
Few, if any, economists are under the illusion employment will avoid deep losses after data showed most of the economy was ravaged by October's extraordinary financial turmoil. If the forecasts are right, October will bring total jobs lost this year to almost a million, following a 760,000 cut through September.
Consumer confidence has hit a record low, while factory and service sector activity are in a slump of historic proportions. Unemployment will certainly get worse, but the numbers may be less important than what is being done to stop the bleeding.
“I think it tells us a lot about where we are and where we are is not good,” said Neal Soss, chief economist at Credit Suisse in New York.
“If the government spends enough money starting here and lends enough money starting here then there will be that many more jobs.”
How bad is the current situation? Since 1939 the U.S. economy has endured only seven other stretches of 10 or more consecutive monthly employment declines, according to Department of Labor statistics.
And while the current run is short of the 15 straight months of job losses in 2001 and 2002, over which more than 2.2 million jobs were lost, many economists worry the current downturn is closer to its beginning than its end.
Friday's report should show job cuts hit a 5-year high of 200,000 in October, according to a Reuters poll, and unemployment jumped to 6.3 percent in October from 6.1 percent.
The scale of the financial and economic carnage, apparent in recent data, has led some to raise their forecasts for job losses since that survey.
Economists at Goldman Sachs now see 300,000 jobs lost in October versus their previous expectation of 250,000 cuts.
“Unfortunately, there is no guarantee that the October decline in payroll employment will be the worst of this cycle,” Goldman said in a research note.
Goldman's change in forecast on Wednesday followed industry surveys this week showing manufacturing suffered its worst slump in 26 years and a key gauge of the service sector posted its lowest reading in its 11-year history.
Goldman itself has plans to cut some 3,300 jobs.
Those reports also indicated a sharp deterioration in employment and were accompanied by corroborating evidence.
U.S. private employers made their deepest job cuts in six years last month and companies' planned layoffs surged to their highest in nearly five years.
All of this hit an economy that already posted nine consecutive months of job losses through September. In a sign of the toll this has taken, data showed on Thursday that continuing claims for unemployment benefits climbed to their highest level in more than 25 years.
“It could be a very bad jobs number,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York.
Obama has advocated a second government stimulus package worth $175 billion that would include money for investments in infrastructure as well as another round of tax rebates.
U.S. House of Representatives Speaker Nancy Pelosi, who will lead a Democratic majority newly invigorated by election gains, has called for around $150 billion in new economic stimulus money, including funds to create construction jobs, give more aid to the states and beef up help for the poor and the unemployed.
She has said she would settle, for now, for $61 billion.
Rupkey said any stimulus should include tax rebates, adding that they were the best at bolstering spending and the economy quickly. In any case, more stimulus appears a good bet.
“Anything that you can throw at a recession, anything that monetary authorities…can throw at a recession is all to the good so I'm sure there is going to be some spending program announced,” Rupkey added.
In the longer run, some analysts also say Obama's plans to cut taxes for all but the richest Americans may solve other problems of a labor market characterized by high levels of frustration for long-term job seekers in recent years.
Some even see surprising parallels to the ideas of American Nobel Laureate economist Milton Friedman, the darling of conservatives.
“Milton Friedman said the solution is to have a negative tax rate at the income ladder, so in other words you'd be earning whatever you earn in your job plus some supplemental grant from the government,” said Christopher Low, chief economist at FTN Financial in New York.
“You're being paid to work, which is essentially the same thing as Obama's tax cut for 95 percent of workers including those that don't pay taxes.”