Outlook darker as hundreds of thousands of jobs are lost!

NEW YORK - July 4, 2008 - The nation’s employers eliminated tens of thousands of jobs in June for the sixth consecutive month in a steady chipping away of the work force that seems likely to leave the economy very weak through Election Day.

Responding quickly to the government employment report, issued Thursday, the presidential candidates called for action, beyond the recent stimulus package, to reverse the deterioration. In past downturns, the Federal Reserve saved the day, or tried to, by cutting interest rates. This time, however, with the Fed having already cut rates drastically, appeals are increasingly going to the White House and Congress.

“The numbers are telling us that there is an ongoing deterioration in the labor market at a relatively rapid clip,” said Jan Hatzius, chief domestic economist at Goldman Sachs. “It is a sign that the fiscal stimulus, the tax rebates, are failing to lift the broader economy.”

Apart from the 62,000 jobs eliminated in June - and 438,000 since January - most workers lost ground to inflation last month, the Bureau of Labor Statistics reported.

While the average weekly wage of most ordinary workers was up 2.8 percent in the 12 months through June, the Consumer Price Index was up more than 4 percent.

“Workers just don’t have the bargaining power to fend off this erosion,” said Jared Bersnetin, senior economist at the Economic Policy Institute.

The erosion of purchasing power, in turn, helps to explain the dismally low consumer confidence numbers in recent weeks. The housing market continues to sag, with little hope of improvement soon.

Adding to the gloom, stock prices plunged this week, pushing a crucial market gauge officially into bear territory, or 20 percent off its peak. And the unemployment rate, which had jumped half a percentage point in May, stayed at 5.5 percent in June, dashing hopes that a horde of young people hunting for jobs would find them and unemployment would fall back.

Few teenagers and new college graduates found work, the bureau reported. What’s more, the percentage of unemployed adult workers 25 and over ticked up for the second straight month, and various forecasters said that by Election Day, the unemployment rate would probably be 6 percent or more - a level last seen in the early 1990s, in the aftermath of a recession.

During the last 50 years, each time the economy has lost jobs for six straight months, a recession was ultimately declared.

The last two recessions, in 1990-1 and in 2001, started in the very month that employment began to shrink. That might turn out to be the case this time, too, once all the data is finally revised. But with jobs disappearing, the economy managed to expand in the first quarter by a weak 1 percent and probably dodged a contraction in the second quarter as well, in the view of Nigel Gault, chief domestic economist at Global Insight, a forecasting and consulting firm.

“We have not really had a downturn quite like this one in which we lose jobs month after month but the economy somehow manages to grow,” Mr. Gault said.

He and Ian Shepherdson, chief domestic economist for High Frequency Economics, see a recession starting in the fall, just in time for the election. By then, the monthly job losses are likely to have accelerated.

As consumers lose buying power because of weakened wages and high gasoline prices, companies will respond, Mr. Shepherdson said, with bigger layoffs, like those announced this week by Starbucks and American Airlines.

“Right now, the economy is not shrinking because of the tax rebates,” he said, referring to the $107 billion in checks being mailed by the federal government to millions of Americans over three months.

As a supplement, Senator Barack Obama, the presumptive Democratic candidate, called on Congress and President Bush to enact “energy rebates” to offset the surge in fuel prices, create a fund to help families avoid foreclosure, extend unemployment insurance benefits beyond the present 26 weeks and channel money to states suffering the most in the current downturn.

 

Senator John McCain, the Republican candidate, asked Congress to help families facing foreclosure and to enact “a jobs-first economic plan,” as well as to lower health costs.

Responding to the jobs report, Dana Perino, the White House press spokeswoman, acknowledged that the nation was “in a period of slow growth,” which was having “an impact on employment.” So far, she said, 105 million rebate checks have gone out, totaling over $86 billion.

The job cuts were greatest in a category called professional and business services, which lost 51,000 jobs, most of them held by temporary workers. Construction, devastated by the collapse in home prices, was next on the list.

For the 12th straight month, employment in that sector shrank, this time by 43,000 workers. Manufacturing, in constant decline, lost 33,000 jobs in June. And there were job losses in a number of other areas, the Bureau of Labor Statistics reported.

Indeed, the only notable increases in the private sector were in health care, restaurant work and other food services, and in each of these areas the rise was at only half the pace of a year ago, the Bureau said.

Donald Davis, a 35-year-old truck driver in Birmingham, Ala., certainly feels the pain. He was laid off on Easter as a driver for a concrete company, and has regularly thumbed through postings at a job placement center ever since, without luck. “Everything is at a standstill,” Mr. Davis said. “Nobody wants to hire anybody right now.”

State and local governments, on the other hand, continued to hire, adding 29,000 jobs last month, and more than 100,000 over the last six months. But most of these governments were operating on budgets enacted for the fiscal year that ended last Monday. The new budgets are expected to contain sharp cost cuts and payroll reductions as the states and municipalities adjust to shrinking tax revenues because of the housing crisis and the weak economy.

“My guess,” said Mr. Hatzius of Goldman Sachs, “is that the job declines across the economy are greater than the monthly numbers we are now seeing, and that will be evident when revisions are published later this year.”