Recession May Be Worse Than Great Depression
Posted on 01/09/09
NEW YORK (CNNMoney.com) — The hemorrhaging of American jobs accelerated at a record pace at the end of 2008, bringing the year’s total job losses to 2.6 million or the highest level in more than six decades.
A sobering U.S. Labor Department jobs report Friday showed the economy lost 524,000 jobs in December and 1.9 million in the year’s final four months, after the credit crisis began in September.
The unemployment rate rose to 7.2% last month from 6.7% in November - its highest rate since January 1993.
The steep annual drop in jobs marked the highest yearly job-loss total since 1945, the year in which World War II ended.
“We’re seeing a complete unraveling of the labor market and are on track for getting beyond 10% unemployment,” said Lawrence Mishel, president of the Economic Policy Institute.
The total number of unemployed Americans rose by 632,000 to 11.1 million.
November, in which 584,000 jobs were lost, and December marked the first time in the 70-year history of the report in which the economy lost more than 500,000 jobs in consecutive months.
“We have a bigger economy now, but even on a proportional basis, the last months have been the worst since [1945],” said Kurt Karl, head of economic research at Swiss Re. “It’s just an enormous acceleration of job losses.”
By comparison, the 2.6 million jobs lost in 2008 nationwide were equal to the number of jobs found in states such as Wisconsin, Missouri or Maryland.
A growing number of workers seeking full-time jobs were able to find only part-time work. Those working part-time jobs - because they couldn’t find full-time work, or their hours had been cut - jumped by 715,000 people to 8 million, the highest since such records were first kept in 1955.
The so-called under-employment rate, which counts those part-time workers as well as those without jobs who have become discouraged and stopped looking for work, rose to a record 13.5% from 12.6%. Calculations for that measure began in January 1994.
“The existing unemployment figures are greatly understated,” said billionaire steel tycoon Wilbur Ross in a recent interview with CNNMoney.com. “They count as employed someone who used to have a high-paid manufacturing job, and now is working at a Wal-Mart or a Wendy’s.”
In another discouraging sign, the average hourly work week fell last month to 33.3 hours - the lowest level in history - from 33.5 hours. Even with a modest 5-cent gain in the average hourly salary, the average weekly paycheck fell by $2 to $611.39.
Job losses were spread across a wide variety of industries. Manufacturing lost 149,000 jobs, the leisure and hospitality industries cut 22,000 jobs, and the mining industry shed 1,000 positions.
Even in the midst of the holiday shopping season, retailers still slashed payrolls by 66,600 workers last month.
Professional and business services jobs, a category seen by some economists as a proxy for overall economic activity, dropped by 113,000. And financial services jobs fell by 14,000.
Only two of ten industry categories were hiring last month. Government hiring, which has stayed relatively strong throughout the downturn, added another 7,000 jobs in December. Education and health services also grew payrolls by 45,000 employees.
Construction employment shrank further by 101,000 jobs, and the rate of construction unemployment soared to 15.3% - by far the highest of any group.
“Today’s jobs report … is conclusive evidence that it is time to put people back to work building America,” said Terry O’Sullivan, general president of the Laborers’ International Union of North America. “Now it’s time for Congress to move to create jobs with the same urgency as they did on the $700 billion Wall Street bailout.”
President-elect Barack Obama has begun his push for a massive stimulus plan, aimed at creating or saving 3 million jobs over the next two years. Lawmakers have called for rapid action to address the extraordinary stresses facing the labor market, including spending hundreds of billions of dollars on new infrastructure projects.
“This morning, we received a stark reminder about how urgent action is needed,” said Obama at a Friday press conference. “Clearly the situation is dire, it is deteriorating and demands urgent and immediate action. For the sake of our economy and our people, this is the moment to act, and act without delay.”
Many economists have said job losses will continue to accelerate without government intervention.
“The country is losing half a million jobs in a month, and if the government doesn’t act quickly, there’s no reason that wouldn’t intensify,” said Mark Zandi, chief economist of Moody’s Economy.com before a Democratic Steering and Policy Committee forum Wednesday.
Infrastructure experts agree, saying unemployed construction workers are eager to get back to work.
“Putting money into highways won’t by itself end the recession, but it will put a lot of skilled workers back on job,” said Ken Simonson, chief economist for The Associated General Contractors of America.
December’s job losses were expected to be deep, as employers looked to slash payrolls to free up balance sheets for the new year. But large-scale cutbacks may continue throughout the first half of 2009, economists say, as the nation’s economy continues on its slow path to recovery.
“I think this [level of job loss] is going to continue at least through March,” said Tig Gilliam, chief executive of Adecco Group North America, a unit of the world’s largest employment firm. “The many clients I’ve spoken with are not expecting an economic bounce-back soon. They’re making the painful and difficult decisions to adjust their capacity for the reduced demand for their goods and services.”
Gilliam and Karl both expect about another 1 million jobs to be lost in January and February before the declines begin to shrink to about a 200,000 level in June. Both said stimulus will help, but they doubt infrastructure jobs will have as quick of a boost as lawmakers hope.
“Infrastructure projects won’t have an effect until late in the year,” said Karl. “Tax cuts may have a more immediate impact, but as we saw with the last stimulus package, they may have no economic impact at all.”
In another sign that more losses will come soon, temporary employment, including workers employed by temp agencies, fell by another 80,600 jobs last month. Employers often cut temporary workers before they begin cutting permanent staff.
The economy has lost more than 2.5 million jobs in the current recession, which began in December 2007, far surpassing the previous two recessions, and just below the 2.7 million jobs lost in the 1981-1982 recession, which had the deepest unemployment in the 70-year history of the report.
