Report Foreshadows Deeper Job Losses
Thursday, April 2, 2009
Private employers slashed a record number of jobs last month, a sign that while the economy appears to be pulling out of its tailspin, a recovery is still far off.
U.S. companies shed 742,000 jobs in March, payroll services company ADP said yesterday, far more than forecasters had been expecting and a bad omen for tomorrow's report on the nation's unemployment rate. That figure will almost certainly rise above its current level of 8.1 percent.
The rate of job losses remains brisk because employers are ratcheting down production and shrinking their workforces to match the sharp fall in consumer demand in recent months. The economy has shed more than 600,000 jobs in each month since December. Analysts expect tomorrow's data to show that March was no different.
"I fully anticipate the jobs report for March will be quite dismal and that will persist for several months to come," said Anirban Basu, chief executive of the Sage Policy Group, a Baltimore consulting firm. "We're in the worst of it from a labor market perspective."
The grim job loss figures from ADP coincided with other, slightly more positive data that bolstered the notion that the economy is deteriorating at a slower pace than in the past three months of 2008, and that the recession is closer to bottoming out.
A closely watched business barometer compiled by the Institute for Supply Management showed that manufacturing activity continued to fall last month, as it has for more than a year now, but at a slower pace. It was the third uptick in the ISM index in as many months.
The ISM report showed that manufacturers have made progress in reducing inventory, but their customers' levels are still too high. As long as retailers and manufacturers are weighed down by unsold goods, they have little incentive to hire or buy new equipment.
Inventory levels could come down more quickly if demand picks up. The ISM report showed that last month the index for orders, while still weak, jumped to its highest level in seven months. The industries reporting more new orders included plastics, furniture, food and computers.
Also yesterday, the Commerce Department reported that spending on new construction in February fell less than expected. However, spending on office buildings, shopping centers and other private nonresidential construction fell for the second month in a row year over year, suggesting that a long-anticipated slump in commercial real estate construction has officially begun and will likely accelerate.
Kenneth Simonson, chief economist for the Associated General Contractors of America, referred to the development as "a somber milestone."
The decline in non-residential construction is one of many reasons analysts fear that prospects for a rapid recovery are weak. Rising foreclosure rates and mounting job losses could mean trouble for banks already saddled with bad debt. Manufacturers are likely to keep struggling as consumers, contending with falling home prices, rising unemployment and mounds of debt, remain tightfisted.
Markets for U.S. exports aren't faring much better. Unemployment in Europe rose more than expected in February to 8.5 percent, its highest level in three years, the European Union said yesterday. A closely watched survey by the Bank of Japan, also out yesterday, showed business confidence at an all-time low with companies saying they still have too many workers.
In the past, sharp downturns in the United States were often followed by sharp recoveries, but Wachovia chief economist John Silvia said all these factors make it unlikely that will happen this time. He described the recession's likely trajectory as "more like a Nike swoosh," referring to the sneaker maker's logo, with a big dip followed by a long and slow slog of a recovery.
"There is not just a business cycle going on here but structural challenges," he said. "I just don't want people to get all happy days are here again."