About 62,000 jobs disappeared in June, the government reported Friday, the sixth consecutive month that payrolls have declined, as businesses rushed to lay off workers amid the worst economic climate in a generation.
And as job losses mount, even those still on payrolls have felt the pain: employers are cutting hours for their full-time employees and shrinking salaries, just as workers face record-high prices for gasoline and food.
The unemployment rate stayed steady in June at 5.5 percent, the highest level in four years. The elevated figure dispelled speculation among some economists that last month’s half-percentage point jump, the biggest monthly spike in 22 years, was a statistical anomaly.
Indeed, employers have been steadily shedding jobs for the last three months. Businesses cut 52,000 more workers in May and April than the government first thought, the Labor Department said, casting aside initial estimates that suggested some deceleration.
In the last 12 months, the economy had seen a net gain of only 15,000 jobs, the lowest net increase since November 2003.
In the last 50 years, the economy has entered a recession every time jobs have dropped for six consecutive months.
I don't have much to comment here, except that the economic situation is getting worse. The U.S. economy has entered a recession in the last 50 years as payrolls dropped for six consecutive months--just as they have this years. Then you have 62,000 jobs disappearing in June, with another 52,000 workers cut in April and May. These are some major job cuts taking place here. And it is not just the job cuts, but also wages dropping as well. Continuing with the NY Times story:
And most Americans who are still employed earned less money in June than they did a year ago. Wages, which have been steadily shrinking in recent months, took a sharp hit last month, growing at the slowest pace since September 2005.
Among rank-and-file workers, who make up the majority of the nation’s work force, weekly paychecks have grown 2.8 percent in the last 12 months. That was down from 3.2 percent in May and well below the rate of inflation.
Average hourly earnings grew 3.4 percent, the slowest pace since the start of 2006.
Wages have not only been shrinking, but whatever gains are being made are below the rate of inflation. Americans are making less money than they were a year ago, and whatever raises they have been given by employers are being eaten up by the inflation rate--we're talking here the higher prices of gas and food that is cutting into their wages. And let us not forget that American consumers are facing high levels of debt. Why is this important? Because the U.S. economy now depends on consumer spending. According to this January 25, 2008 Time Magazine article, titled Can the World Stop the Slide:
Consumer spending used to make up about 67% of all the economic activity in the U.S., but over the past few years, it's ratcheted up to around 72%. "If we take the 5 percentage points out this year, it will be the mother of all U.S. recessions," Roach says. But putting the adjustment off indefinitely isn't a great idea either. "It's just pushing the fundamental problem down the road," says Columbia University economist and Nobel laureate Joseph Stiglitz. "The problem with the U.S. is excessive consumption."
The U.S. consumer binge has been fueled not by rising incomes but by rising debt, especially mortgage debt. "People can't spend 200% of their income on mortgages," says Stiglitz. The only way for this to continue was for house prices to keep rising. Then, shock of shocks, they stopped going up, and mortgages started going bad by the millions.
During the housing bubble, American consumers were using their homes as ATM machines by taking money out of their home equity and spending it. And that was fine as long as home values continued to rise. Well, the bubble burst, home values dropped, and those same Americans that were using their home ATM machines were now feeling the crushing pain of debt. In other words, Americans are going bankrupt. And as Americans are facing even more job losses, stagnating wages, and high mortgage and credit card debt, they will be cutting back on their spending. If consumer spending has been making up around 72 percent of the U.S. economy, any cutback on that spending is going to cause the "mother of all U.S. recessions." The day of reckoning is coming.
Now let us go into the second New York Times article, titled Deepening Cycle of Job Loss Seen Lasting Into ’09:
As automakers dropped their latest batch of awful sales numbers on the market on Tuesday, reinforcing the gloom spreading across the economy, the troubles confronting American workers seemed to intensify.
Plummeting home prices have in recent months eliminated jobs for hundreds of thousands of people, from bankers and real estate agents to construction workers and furniture manufacturers. Tighter lending standards imposed by banks in the wake of huge mortgage losses have made it hard for many Americans to secure credit — the lifeblood of expansion in recent years — crimping the appetite of consumers, whose spending amounts to 70 percent of the economy.
Joblessness has accelerated, and employers have slashed working hours even for those on their payrolls, shrinking the size of paychecks just as workers need them the most.
Now, add to that unsavory mix the word from automakers that sales plunged in June — by 28 percent for Ford, 21 percent for Toyota and 18 percent for General Motors — a sharp sign that consumers are pulling back, making manufacturers more likely to cut production and impose more layoffs. Until recently, the weak labor market has been marked more by the reluctance of employers to create new jobs than by mass layoffs.
Among economists, the sense is broadening that the troubles dogging the economy will be stubborn, leaving in place an uncomfortable combination of tight credit and scant job opportunities perhaps well into next year.Graphic showing sector changes in the U.S. unemployment rate. From The New York Times.
Job losses will continue well into 2009. I'm starting to wonder if the job losses and this U.S. recession will continue into 2010, considering all the problems we have in this country with mortgage crisis, the housing bust, the high levels of debt, companies cutting jobs, possible stagflation, and the American consumer being tapped out. It is almost like a snowball effect, as more bad economic news comes in, the snowball gets bigger and starts rolling down the hill faster until the whole monstrosity smashes right into your face.
Then there is this important piece of information from the NY Times:
The national unemployment rate climbed a full percentage point over the last year to 5.5 percent in May, according to the Labor Department. That does not include people who are jobless and have given up looking for work, or people who have been bumped to part-time jobs from full-time. Add in those people and the so-called underemployment rate rises to 9.7 percent, up from 8.3 percent in May 2007, according to the Labor Department.
Goldman Sachs forecasts that the unemployment rate will peak at 6.4 percent late in 2009 before the picture improves, meaning that the painful process of shedding jobs may be only half-way complete.
I have always had a problem with the way the current U.S. unemployment rate has been calculated with this low 5.5 percent. I know that the unemployment rate is calculated according to the number of Americans receiving unemployment benefits, and those Americans whose benefits have been exhausted are dropped from the unemployment rolls. The unemployment rate also never took into account those Americans who have stopped looking for work, Americans working part-time, or are taking jobs below their skill levels. It always seemed very suspicious to me that, with all the problems of the housing mess, the high debt, the rising inflation, and the slowing consumer spending (especially with the drop in retail sales), that the unemployment rate always remained at around 5 percent and economists were touting this low unemployment rate as a continuing strength for the U.S. economy. Factor in the workers who have stopped looking for jobs, who have been dropped from the unemployment benefits, and those who are forced to work part-time, and you have a U.S. underemployment rate that is approaching 10 percent--not good for a U.S. economy that is heading into a bad recession. If Goldman Sachs is predicting that the unemployment rate will peak at 6.4 percent, then adding in the American workers who have been dropped from unemployment or are working part time could send the unemployment rate up to around 11.29 percent (Ratio is 5.5 percent current unemployment / 9.7 percent current underemployment = 6.4 percent projected 2009 unemployment / 11.29 percent projected 2009 underemployment). You can not have a 2009 growing U.S. economy with an underemployment rate of over 11 percent. And we're only halfway into 2008. If the job losses continue on into 2009, we are going to see even more worsening economic conditions continue within the U.S.
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