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Unemployment Sounds Warning About US Economy
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| Omega_M |
I just read this article in NYTimes. Not good at all. Any thoughts by our in house economists and people who understand this technically ?
Or by people who don't understand economics but would still like to say something about it ? :p
Basically November created 115,000 jobs, whereas December created only 18,000 :eek: You would expect the job scene to slow down because of the holiday season, but this drop is a bit too steep for comfort.
| quote: | The unemployment rate surged to 5 percent in December as the economy added a meager 18,000 jobs, the smallest monthly increase in four years, the Labor Department reported on Friday.
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Economists viewed the report as the most powerful indication to date that the United States could well be falling into a recessionary downturn. Evidence of widening unemployment heightened anticipation that the Federal Reserve would further cut interest rates this month, perhaps by an unusually large half a percentage point, in a bid to prevent the economy from sliding into the muck.
“This is unambiguously negative,” said Mark Zandi, chief economist at Moody’s Economy.com. “The economy is on the edge of recession, if we’re not already engulfed in one.”
A recession is typically defined as an extended period of at least several months during which economic activity shrinks and unemployment rises.
The swift deterioration in the job market resonated as a warning sign that troubles once confined to real estate and construction are spilling into the broader economy, threatening the ability of American consumers to keep spending with customary abandon.
On Wall Street, the report led to a big sell-off that sent the Dow Jones industrial average plunging nearly 2 percent.
As the presidential race heated up, Democrats seized upon the bleak job numbers to indict Republican-led economic policies. “This morning’s jobs report confirms what most Americans already knew,” Nancy Pelosi, the House speaker, said in a statement. “President Bush’s economic policies have failed our country’s middle class.”
President Bush cautioned that “we can’t take economic growth for granted” and said he would work with Congress to be “more diligent” on protecting the economy. Speaking to reporters at the White House after a meeting with his economic advisers, Mr. Bush warned that “the worst thing the Congress could do is raise taxes on the American people.”
The lone consolation for investors, workers and the public at large was that the bad news seemed severe enough to prod the Fed to push its benchmark rate below its current 4.25 percent when policy makers meet at the end of the month. Lower interest rates decrease borrowing costs and encourage banks to lend more freely, spurring spending, hiring and investment.
The Fed has already eased rates three times since September in a bid to inject confidence into jittery markets. But analysts cautioned that central bankers may now feel constrained against further easing: inflation is growing, particularly as oil hovers near $100 a barrel. Lower interest rates, over time, can generate the seeds of inflation, and could make an already weak dollar worth less against foreign currencies.
“The Fed is trying to juggle a two-sided sword,” said Ryan Larson, senior equity trader at Voyageur Asset Management. “They’re trying to fight inflation moving higher and they’re trying to fight a slowdown in growth.”
In an effort to encourage lending, the Fed has been pumping cash through the banking system by auctioning off loans at discounted rates. On Friday, it said it would expand a pair of auctions scheduled for this month, offering $30 billion.
Some economists said the markets and other analysts were making too much of a lone jobs report that could yet be revised.
“The stock and bond markets are going into panic mode,” said Michael Darda, chief economist at MKM Partners, a research and trading firm in Greenwich, Conn. “We’re going to have a slowdown, but I don’t think we’re going to have a recession.”
While filings for jobless benefits have been rising in recent weeks, the pace has not been swift enough to justify such a sharp jump in the unemployment rate, Mr. Darda added.
For months, the economy had managed to grow vigorously despite worrying developments, from the unraveling of the housing industry to turmoil in the credit markets. Through it all, economists marveled at the resilience of the labor market, suggesting that as long as the economy kept creating jobs by the tens of thousands each month, Americans would keep spending and growth would carry on.
But the jobs report for December suggested that the negatives dogging the economy finally appear to be dragging it down.
“There’s no mystery as to why the unemployment rate went up,” said Robert A. Barbera, chief economist at the research firm ITG. “The mystery is why it took so long.”
December’s addition of 18,000 jobs to nonfarm payrolls was an abrupt drop from the 115,000 created in November — a figure revised on Friday from an initial estimate of 94,000. It put the annual rate of job growth at its lowest since 2004.
Some areas of the economy continued to expand, according to the report. Government jobs grew, and health care added 28,000 jobs. Food services added 27,000.
But that growth was largely reversed by pain elsewhere. Retailing lost 24,000 jobs in December. Financial services lost 7,000. Construction shed another 49,000 jobs. Even commercial construction, which some have suggested could compensate for woes among home builders, lost 17,000 jobs. Over all, private sector jobs slid by 13,000.
Despite a weak dollar, which has helped compensate for disappointment at home by lifting American sales abroad, the nation shed 31,000 manufacturing jobs in December.
For the third consecutive month, wages grew slower than the pace of inflation, cutting into the real income of many workers. Among rank-and-file workers, who make up more than four-fifths of the labor force, average hourly earnings rose 3.7 percent last year, below the 4.3 percent rise in 2006.
Job growth has been slowing steadily for two years. In 2005, the economy generated 212,000 new jobs a month, according to the Labor Department. Last year, the pace dropped to 122,000.
The spike in the unemployment rate, which was 4.7 percent in November, suggested that the deterioration of the job market is now accelerating.
Last year, companies fretted about business prospects amid falling housing prices and tightening credit. Many stopped hiring, but large-scale layoffs were rare. But now, some appear to have concluded that they can no longer tough it out.
“December’s bleak jobs report represents the siren call that this business cycle is just about over,” declared Bernard Baumohl, managing director at the Economic Outlook Group, in a note to clients. “We’re about to tilt over to the other side of the economic curve and begin the downsizing.”
In Penacook, N.H., the tilt came during the Christmas season: Riverside Millwork, a supplier of windows, doors and stair parts, laid off 43 people. That added to a wave of layoffs that has winnowed the staff from 225 to 40 since October 2005, when home building began its decline.
“We’ve cut just about everything that we can possibly cut,” said Larry Byer, the company’s human resource manager. “When you don’t have assets to sell or to keep you going, the bodies have to go.”
In calculating the rate of job growth, the Labor Department relies upon a sampling of payroll data and an extrapolation of how many jobs have been created and destroyed. An accompanying survey of households, used to calculate the unemployment rate, presented an even bleaker picture, showing that the number of Americans saying they were working plunged by 436,000 in December — the worst number in five years.
The trend was pronounced for teenagers, blacks and Hispanics, with unemployment among those groups jumping 0.6 percentage point, triple the increase for whites.
The household survey is notoriously volatile and treated with skepticism. But unlike the payroll data, it is not subject to revision, other than for seasonal factors, making it a better indicator when the economy is on the cusp of change, Mr. Barbera said.
Between December 2005 and December 2006, the household survey showed jobs increasing by 2.2 percent. Over the last year, jobs grew less than 0.2 percent.
“Every time we’ve gotten down to this level since 1956, there’s been a recession,” Mr. Barbera said.
The risk is that the weakening job market will swell from a symptom of malaise to a cause. As fewer jobs are created, spending power could dry up. Faced with declining business, employers could further trim payrolls. As unemployment grows, more homeowners could fall behind on mortgages, leading to more losses at banks, and more layoffs.
“The risk of a vicious cycle setting in now is very high,” Mr. Zandi said. “The job market’s operating at stall speed. Either it picks up soon or it quickly unravels.” |
http://www.nytimes.com/2008/01/05/b...gewanted=1&_r=1 |
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| Ian |
| wait. is this the same america that Lim(FX=FA) guy is telling us is so great & beating us all at everything :p |
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| Lira |
| quote: | Originally posted by Ian
wait. is this the same america that Lim(FX=FA) guy is telling us is so great & beating us all at everything :p |
Ballin' |
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| Theresa |
It sucks... whatever happens in the U.S. usually follows over to Canada in short.
I work in the travel industry, and this kind of thing means my industry will suffer... bad.
Booerns.
Edit:
I don't know much about the housing market, but if the recession occurs, houses will be cheaper, right? If you can afford it, and know you have a job... would this be a good time to buy a house? |
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| eROs.au |
| Higher interest rates! |
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| emc^2 |
Well, as fun as it is, you can't keep the Mall Santa and his friendly little elves employed all year long, so there goes a large number of losers to claim unemployment. You then have those souls who are hired to work from october - december and they are back to unemployment... You then have companies that go on a shutdown during this season because of slow business, you then have construction companies who are feeling the pinch of ty housing market, and then you have manufacturing sector, who caters in large part to home builder sector.
There ya go. And 5% aint bad, we had worse. But since it's in New York Times I say.... EVERYBODY PANIC!!!!!!!!! |
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| Beat Blog |
Actually, the whole world is possible due for a recession/depression in the next decade.
China and India are experiencing severe shortages of skilled labour, which in turn pushes up prices of everything in the western world, causing a fair amount of chaos.
I don't think a recession would be too badder thing; succesive generations in the western world are getting it easier and easier these days and are becoming lazier, less skilled, and more ungrateful, and a recession would fix this. :p
Damn brats would have to walk home 5 miles in the snow and chop five tons of wood when they get there. That'll learn 'em.
/old man rant |
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| Fibonacci |
Alot of it is due to the subprime mortgage fiasco. If you don't know what it is, research it - basically, it's banks lending people with marginal credit who are under the impression that their house values will increase. Well, house values started to tumble and the economy became rocky, making it near impossible for many home owners to afford their mortgages, and thus, defaulted. It was stupid on account of the lenders, and account of the borrowers. Some financial groups (Goldman & Sachs) were able to see this coming, and bet against the odds - and paid off big time.
But the financial markets hold such a strong stake in the economy that alot of them are in alot of pain. Washington Mutual and Citigroup stocks are less than half/half (respectively) of what they were 6 months ago. I'm sure other banks are doing just as poorly, if not worse. It's just making a bad situation worse.
A recession is a natural part of an economic cycle, and now is probably a good time to invest - For the first time, home values are decreasing. Sucks if you're a home owner, great if you're a buyer. But do NOT expect your house values to increase - the subprime borrowers made this mistake. It will be harder for you to finance, and FICO (the company that creates your credit score) is revamping the way they measure credit, and 90% of banks use FICO... so, if you can afford it, now may be the time, or a few months from now may be the time. You can get a house/coop/condo for cheaper, and probably at a better interest rate since they are desperate to sell off these properties... however, you will require better credit.
an unemployment hike from 4.7% to 5% isn't the end of the world, and the Feds have tools to counter this - mainly the lowering of the interest rate, which curtails/stimulates economic growth. Once it hits 10%+... then I'll start saving my acorns ;) |
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| emc^2 |
| quote: | Originally posted by Fibonacci
Alot of it is due to the subprime mortgage fiasco. |
...Or as some in the know would call it "a very elaborate (and quite brilliant for those who were smart to jump in/out at the right time) pyramid scheme", perhaps the most cunning scheme to date.
Oh, and if predatory lending institutions like Citibank are feeling the pinch - serves them f*cking right. They should have plenty of blood money in their cofers to cover the tab, seeing that they would charge many ppl enormous amount of excessive interest over the years. |
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| Halcyon+On+On |
| quote: | Originally posted by Theresa
It sucks... whatever happens in the U.S. usually follows over to Canada in short.
I work in the travel industry, and this kind of thing means my industry will suffer... bad.
Booerns.
Edit:
I don't know much about the housing market, but if the recession occurs, houses will be cheaper, right? If you can afford it, and know you have a job... would this be a good time to buy a house? |
Actually, you work in the screwing hotels out of their business industry. It's one of those economic leeches that destroys a business' ability to set prices at the level they can both afford and accommodate. |
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| Theresa |
| quote: | Originally posted by Halcyon+On+On
Actually, you work in the screwing hotels out of their business industry. It's one of those economic leeches that destroys a business' ability to set prices at the level they can both afford and accommodate. |
Ermm? What?
What do hotels have to do with what I do (working with flight reservations)? |
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