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The recession’s severity will be worse than expected a few weeks ago. Why? Joblessness is increasing more rapidly than anticipated. Over half of the jobs lost in 2008 came in the past three months, including 240,000 jobs in October, a new figure reported by the government on Nov. 7.
This is no longer an issue of putting financial markets back in order. We now forecast the unemployment rate reaching 8% by year-end 2009. That’s still nearly three percentage points below the 10.8% peak in 1982 hit in the aftermath of the 1981-82 recession. But in an economy dependent on consumer spending, rising unemployment translates into a much harsher downturn.
Already this year, 1.2 million jobs have disappeared, compared with a net gain of 1.1 million jobs in 2007. Before the year is out, more than 1.5 million jobs will be lost and more than 2 million jobs will disappear in 2009. In each of the past two recessions in 2001 and in 1990-1991, job losses in some months topped 300,000. During this recession, those monthly numbers will almost certainly be matched if not topped.
The nation’s unemployment rate jumped to 6.5% in October from 6.1% a month earlier, the biggest monthly jump since November 1982 and the highest jobless rate since March 1994. Following the last recession, the unemployment rate hit a peak of 6.3% in June 2003.
More than history is signaling tough times ahead. Surveys of purchasing managers for manufacturing and services released early in November point to more layoffs in the near term. Manufacturing has been shedding jobs for more than a year. But, in an ominous note, the purchasing managers said that exports declined in October, and that's been a rare source of growth this year. The overall manufacturing index is at its lowest since September 1982.
The weakness in the goods sector is spreading widely through services. Brian Bethune, chief financial economist for Global Insight, says that signs of improvement in credit markets and the nimble trait of many services bode well for a quick recovery "when the economy gets back on track." But we don't expect that to happen until the second half of next year.
One bright spot continues to be job gains in education and health care services. However, the Boeing strike, which ended early in November, subtracted an estimated 27,000 jobs from the payroll total in October.
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