TOPICS > Economy

Soaring Jobless Rate Offers Latest Sign of Weakened Economy

November 7, 2008 at 6:10 PM EDT
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In the latest gloomy financial news, the U.S. economy shed 240,000 jobs in October, pushing the employment rate up to 6.5 percent. Two analysts examine the labor numbers and what they say about the economy.
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JIM LEHRER: Jeffrey Brown has our unemployment coverage.

JEFFREY BROWN: Not only did we learn today that unemployment rose sharply in October, the Labor Department’s revisions also showed that job losses have been on a very steep slide since the summer, some 650,000 jobs lost since August.

To fill in the picture, we turn to Lisa Lynch, dean of the Heller School at Brandeis University and a former chief economist at the Department of Labor. She serves on the board of directors of the Boston Federal Reserve.

And Nariman Behravesh, chief economist of IHS Global Insight, an economic forecasting and research firm, and author of a new book, “Spin-Free Economics.”

Well, Lisa Lynch, the October losses were not only deep, but they were quite broad throughout the economy, right?

LISA LYNCH, Brandeis University: Absolutely. We saw job losses in manufacturing, construction, retail, and wholesale trade, financial services, really across the board.

The only bright spots in terms of employment gains in today’s report was in the health care sector, where we saw an increase of about 26,000 jobs. A little bit of an increase in the mining sector. And then government, although most of that was concentrated in local government, and I don’t think we’re going to see those kinds of job gains going forward.

JEFFREY BROWN: Nariman Behravesh, the Labor Department as we said also revised the last couple of months. Now, what does that tell us about — about the depths of the problem that we’re in?

NARIMAN BEHRAVESH, Economist, Global Insight: Well, it does suggest that this recession is going to be very, very deep. And, in fact, we probably have lost about 1.2 million jobs since the beginning of the year. And that’s big.

And we’ll probably lose at least another million or so jobs before this is done. So, unfortunately, as Lisa was saying, this is big. It’s bad. It’s broad-based. And, unfortunately, it’s going to get worse before it gets better.

A deepening recession

Nariman Behravesh
IHS Global Insight
[W]e're headed for a recession that's probably at least as bad as the 1990-91 recession and possibly -- although probably not -- but possibly as bad as the worst recession in the postwar period, which occurred in 1982.

JEFFREY BROWN: Just staying with you, it's interesting to note, I think, that would suggest that all this hit -- or all this was hitting pretty hard even before the financial crisis kind of really hit us in late September, early October.

NARIMAN BEHRAVESH: That is correct. I mean, basically, before the big sort of financial crisis hit in September, the recession could have been characterized as mild. Well, we can now banish that term from our vocabulary, because what the financial crisis did was it turned this recession into a much deeper one.

And so, indeed, we're headed for a recession that's probably at least as bad as the 1990-91 recession and possibly -- although probably not -- but possibly as bad as the worst recession in the postwar period, which occurred in 1982.

JEFFREY BROWN: Lisa Lynch, today's report also had some numbers on average hourly wages. What did we learn there?

LISA LYNCH: So we saw some other things. Average hourly wages increased 2.9 percent on a weekly basis. Now, that's running below inflation, which is rising right now at 4.9 percent.

So people that are fortunate enough to have a job are seeing their weekly wages not keeping pace with inflation. And part of that is a reflection of another dimension of the softening in the labor market that's not captured by the unemployment rate, and that is a lot of people are in work but are working a lot fewer hours, either because they could only find part-time employment or their employers have reduced their hours.

So if we come up with a broader measure of unemployment that includes people that are out of work, people who've given up looking for work because they know there's nothing around them, and people that are working part time for this sort of economic reason, the unemployment rate would be 11.8 percent.

So more than one in 10 workers out of work or severely stressed with respect to the softening in the economy.

Economy getting even worse

Lisa Lynch
Brandeis University
When we see in today's report that more than one in five people are out of work for six months or more, extension of unemployment benefits makes a lot of sense.

JEFFREY BROWN: Well, that's interesting, Nariman Behravesh, because we do have to remind ourselves and the viewers that the unemployment number doesn't count those who have given up looking, right? So what would you add to this notion of discouraged workers at this point?

NARIMAN BEHRAVESH: Well, there's no question about the fact that the top-line unemployment numbers, the ones that get reported, understate the scope of the problem.

But as I was saying earlier, you know, it will get worse even for the top-line numbers. I mean, our best guess is, by the middle of next year, the top-line numbers are going to go to, say, 8.5 percent, which means that, in these broader measures, it's going to be a lot higher than that, maybe 15 percent. So it is a problem.

JEFFREY BROWN: I wanted to ask you both -- I'll start with you, Nariman -- just about the speed, the pace of this loss, because that's getting a lot of attention. How unusual is it to kind of fall off the cliff, which is one of the metaphors we're using today, over the last few months so quickly with such steep losses?

NARIMAN BEHRAVESH: Well, I think it is a little unusual in the sense that you had an economy that was struggling, but then it got hit with this huge financial shock. That's a little unusual. I'm not saying it's never happened before, but it is rather unusual.

That's not the way a normal, if you can call it that, recession typically moves forward.

JEFFREY BROWN: Lisa Lynch, what do you think about the pace here?

LISA LYNCH: Well, I think -- I agree, but I think that what this requires is some speedy responses. We've seen the Fed ease in terms of Fed interest rates.

And now I think, as we heard earlier in the program, that it's really important for Congress even before the next president is sworn in to respond with a fiscal stimulus package.

When we see in today's report that more than one in five people are out of work for six months or more, extension of unemployment benefits makes a lot of sense.

But we know, with so many people losing their jobs and more to come, states are going to have a lot of demands on their social services. So aid to them will become very important, as well, food stamps, et cetera.

So we're going to need some speedy policy responses to match the speediness of this decaying of the labor market.

Looking ahead at the markets

Lisa Lynch
Brandeis University
[T]here's not a lot of good news on the horizon when we look forward to what companies are doing that would give some sense that this trajectory is going to be something different.

JEFFREY BROWN: Let me ask you one more -- Lisa Lynch, one more question about the number itself, because we often are told that the unemployment number is a lagging indicator, looking back rather than predicting the future, I think. And yet you both said that it's pretty clear that the number is going to get higher.

When you look at a report like today, how do you extrapolate to think about what's coming in the next few months?

LISA LYNCH: Well, you can look -- there are other things you can look at in the economy. Retailers have already said they're having very weak sales and are anticipating a weak holiday season.

So what would have been a positive thing in the labor market in the coming months would have been hiring of seasonal workers in the retail sector. I anticipate we'd see much less of that. That, in turn, will show up very quickly in the unemployment numbers and job loss numbers.

And we had announcements today from both Ford and G.M. of third-quarter earnings that were just a disaster. So we know we're going to see continued job cuts in that sector, as well.

So there's not a lot of good news on the horizon when we look forward to what companies are doing that would give some sense that this trajectory is going to be something different.

JEFFREY BROWN: And let me ask Nariman Behravesh just one last question. Is it worth noting today that the stock market did, in fact, go up on a day when we're reporting such bad news about the economy? Does that fall into the "don't watch it every day and read too much into it" category? How do you explain it?

NARIMAN BEHRAVESH: No, I think the market had already figured in a bad number on the unemployment front. But I think they're now anticipating that they'll get more rate cuts from the Fed and this fiscal package that Lisa was referring to earlier.

And so, from that perspective, they're kind of looking ahead and anticipating perhaps a faster turnaround.

JEFFREY BROWN: OK, thank you both very much, Nariman Behravesh and Lisa Lynch. Thanks a lot.

LISA LYNCH: Thank you.