Little Hope in Job Outlook

This recession carries with it serious job losses, putting more pressure on Congress to help.

By Jerome Idaszak, Associate Editor, The Kiplinger Letter

December 5, 2008

This recession will be plagued by staggering layoffs and rising joblessness not seen in the economy in nearly three decades. The past two recessions were not only short and shallow, as downturns go, but they also were not accompanied by massive job losses and soaring unemployment. That won't be true this time.

We fear job losses in 2009 will top this year's expected loss of 2.3 million jobs, a problem not besetting either of the past two recessions. Even if nothing catastrophic happens, job losses could approach the 3 million mark by year end in 2009, while the unemployment rate is likely to peak at close to 9%.

The Labor Department says the jobless rate rose to 6.7% in November, the highest since 1993 and up from 6.5% in October. Even worse, the government said on December 5 that 533,000 jobs disappeared in November, the biggest monthly loss since December 1974. That follows the economy losing 320,000 jobs in October and 403,000 in September, both figures having been revised sharply upward.

With a month to go, the economy has already lost 1.9 million jobs in 2008. Two-thirds of those came in just the past three months. The tally of lost jobs, while stunning, understates the weakness of the labor market. Job losses were widespread, from manufacturing to construction to financial services and retailing. Small gains did appear, but only in education, health care services and government.

The number of people seeking full-time jobs who can't get them is soaring. The total jumped 10% in October to 6.7 million, the Labor Department said, and in November rose again to 7.3 million. The figure has risen 2.8 million the past 12 months.

The accumulating job losses confirm our view that gross domestic product will contract 4% in the final quarter of 2008. Companies across the board are reporting poor sales and say they see no improvement in sight. Diane Swonk, chief economist with Mesirow Financial, notes that "a Chicago company recently promoted a large number of its hourly workers to eliminate costs associated with overtime pay. It didn't, however, lower the number of hours," which means the company is getting work for less pay.

The economy's woes put more pressure on Congress to deliver a big package of tax cuts and spending increases to President-elect Barack Obama for his signature in late January. The spiraling job losses also step up the case for giving some relief to Detroit's carmakers, whose executives say they can't wait until January for a cash infusion.

The gloomy job outlook shows no signs of abating as seen in reports released in the first week of December. Further declines are expected by purchasing managers in manufacturing and in services as well as large companies represented by the Business Roundtable and small firms that belong to the National Federation of Independent Business.

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