Nov 7, 2008 |
A vicious cycle
Vanishing jobs, stressed consumers feed downturn WASHINGTON - A VICIOUS cycle of vanishing jobs and stresses on American consumers is spelling deeper trouble for the already sinking US economy.
All the economy's woes - a housing collapse, mounting foreclosures, hard-to-get credit and financial market upheaval - will confront President-elect Barack Obama when he assumes office early next year.
Mr Obama has shifted from campaign mode to the task of building a new Democratic administration. A top priority will be quickly assembling his economics team, including the secretaries of Treasury, Commerce and Labor.
On the crucial jobs front, the situation is likely to move from bad to worse next year.
Employers have slashed jobs in the first nine months of this year. A staggering 760,000 losses have been racked up so far.
And more are expected. The government's monthly jobs report is due out on Friday, and net job losses for October are expected to total about 200,000.
The unemployment rate, now 6.1 per cent, is expected to rise to 6.3 per cent.
If it does, it would match the highest unemployment rate that was logged after the last recession, in 2001. The jobless rate hit 6.3 per cent in June 2003 and then started to drift downward.
Many expect the jobless rate to climb to 8 per cent, possibly higher, next year. In the 1980-1982 recession, the unemployment rate rose as high as 10.8 per cent before inching down.
Stressed consumers are cutting back on their shopping and trying to trim their debt. Economists believe consumers cut back on borrowing in September, as another report to be released on Friday is expected to show.
Nearly half a million Americans filed new claims for unemployment benefits in the last week alone, and skittish shoppers handed many retailers their weakest sales since 1969, government reports out on Thursday showed.
The Labor Department said new filings for jobless benefits clocked in at 481,000, a dip from the previous week but a still-elevated level that suggests companies are resorting to big layoffs to cope with the economy's downturn.
Hartford Financial Services Group, Circuit City Stores, drug maker GlaxoSmithKline, chip maker Advanced Micro Devices, auto parts maker Dana Holding, cable operators Comcast and Cox Communications and Fidelity Investments are among the companies that recently have announced layoffs.
To provide fresh relief, House Speaker Nancy Pelosi said Democrats, in a lame-duck session later this month, would push to enact another round of economic stimulus to provide more relief, which could include extending jobless benefits.
A US$168 billion (S$250 billion) package, including tax rebates for people and tax breaks for businesses, was rolled out earlier this year. Short of a package of YS$100 billion or more, the House could press the Senate to pass a smaller US$61 billion measure that would bankroll public works projects to help generate new jobs and would extend unemployment benefits.
Companies are begging for help, too. The leaders of General Motors, Ford and Chrysler and the president of the United Auto Workers union came to Capitol Hill to discuss billions of dollars more in financial help.
Reeling from layoffs and watching their wealth shrink as home values and nest eggs have been clobbered, shoppers turned extra frugal last month and sent sales at many retailers down sharply.
Mr Michael P. Niemira, chief economist at the International Council of Shopping Centers, summed up the situation as 'awful'.
According to the ICSC-Goldman Sachs index, sales fell 1 per cent, the weakest October performance since at least 1969 when the index began.
Target and Costco were among the many retailers reporting sales declines last month. Even teens stayed away from malls.
American Eagle Outfitters and Abercrombie & Fitch reported drops in sales. But Wal-Mart Stores, the world's largest retailer, logged a sales gain as shoppers hunted for bargains.
The Federal Reserve ratcheted down interest rates last week to 1 per cent and left the door open to further reductions in a bid to prevent a drawn out recession in the United States.
The country's economic state has rapidly deteriorated in just a few months. The economy contracted at a 0.3 percent pace in the July-September quarter, s ignaling the onset of a likely recession.
It was the worst showing since the 2001 recession, and reflected a massive pullback by consumers.
As US consumers watch jobs disappear, they'll probably retrench even further.
That's why analysts predict the economy is still shrinking in the current October-December quarter and will contract further in the first quarter of next year.
All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity. -- AP
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