By Shobhana Chandra
The U.S. lost more jobs in 2008 than any year since 1945 as employers fired another 524,000 people in December, indicating a free-fall in the economy just days before President-elect Barack Obama takes office.
“Consumers are now going to get more and more scared at the prospect of losing their job,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. Obama’s proposed fiscal stimulus “needs to be big, needs to be bold, needs to be swift. If they can do something quickly we can limit the hemorrhage by mid-year.”
The Labor Department reported that the nation lost 2.589 million jobs in 2008, with the unemployment rate climbing more than economists forecast, to a 15-year high of 7.2 percent in December.
Today’s figures will intensify pressure on U.S. lawmakers to speed Obama’s recovery program, which may exceed $775 billion, through Congress in an effort to save or create 3 million jobs. They also underscore the urgency of the Federal Reserve’s $200 billion initiative to restart consumer financing markets that’s scheduled to begin next month.
The outlook for jobs this year is no brighter as retailers from Wal-Mart Stores Inc. to Macy’s Inc. slash profit forecasts and manufacturers including Alcoa Inc. cut output and staff.
Stocks, Treasuries
Stock-index futures rose and Treasuries fell amid relief among some investors that the drop in payrolls wasn’t even bigger. Futures on the Standard & Poor’s 500 Stock Index rose 0.4 percent to 910.70 at 9:10 a.m. in New York, and yields on benchmark 10-year notes were at 2.47 percent, from 2.44 percent late yesterday. The dollar gained 1 percent to $1.3568 per euro.
Payrolls were forecast to drop 525,000 after a previously reported 533,000 decline in November, according to the median estimate of 73 economists surveyed by Bloomberg News. Revisions subtracted 154,000 from payroll figures previously reported for November and October.
The jobless rate was projected to jump to 7 percent from a previously reported 6.7 percent in November.
Obama is pressing for a stimulus plan including tax cuts and spending on everything from roads and schools to the energy network. Yesterday he called for “dramatic action as soon as possible” to help pull the world’s largest economy out of a slump that’s in its second year. “If nothing is done, this recession could linger for years,” he said in Fairfax, Virginia.
Benchmark Revisions
With today’s report, Labor revised figures from its household survey, which includes the unemployment rate, going back five years. Benchmark revisions to the payroll figures will be announced in February.
Last month’s decline was the 12th consecutive drop in payrolls. The economy created 1.1 million jobs in 2007.
Today’s report showed factory payrolls shrank 149,000, the biggest drop since August 2001, after decreasing 104,000 in November. Economists had forecast a drop of 100,000.
The decrease included a loss of 21,400 jobs in auto and parts industries. Manufacturing, which makes up 12 percent of the economy, shrank in December at the fastest pace in 28 years, Institute for Supply Management figures showed.
Payrolls at builders dropped by 101,000 after decreasing 85,000. Financial firms reduced payrolls by 14,000, after a 28,000 loss the prior month.
Services Jobs
Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 273,000 workers after a decline of 402,000. Retail payrolls dropped by 66,600 after a 100,000 decrease.
Government payrolls increased by 7,000 after falling 3,000 the prior month.
Fed staff last month cut projections for gross domestic product and the job market, stating the unemployment rate was “likely to rise significantly into 2010,” according to minutes of policy makers’ December meeting.
Analysts said the economy may be in danger of a reinforcing cycle of rising unemployment and declining household spending, what policy makers call a negative feedback loop, which is difficult to snap once it’s begun.
“This was the most rapid deterioration in the labor market over a six-month period since 1975,” said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. “Policy makers will go full throttle” until “the labor market starts to turn,” he said.
Wal-Mart, the world’s biggest retail chain, yesterday said fourth-quarter profit will miss its earlier forecasts after sales rose less than analysts anticipated. Macy’s said December revenue slipped 4 percent and announced it would close 11 stores.
Retail Sales
Sales at stores open at least a year dropped 2.2 percent in the last two month months of 2008, the biggest holiday-season decline since the International Council of Shopping Centers started keeping records in 1970, the group said yesterday.
“These are extraordinary times, requiring speed and decisiveness to address the current economic downturn,” Klaus Kleinfeld, chief executive officer of Alcoa, said in a Jan. 6 statement announcing 13,500 job cuts worldwide. The world’s largest aluminum producer said it will trim an additional 1,700 contractor positions and froze hiring and salaries in some areas.
Some companies have taken other steps to lower costs. Caterpillar Inc., the world’s largest maker of construction equipment, will put 814 workers on an “indefinite” layoff, shipper FedEx Corp. cut the pay of Chief Executive Officer Fred Smith and other employees, and auto-parts supplier Visteon Corp. said it will trim the workweek and some salaries.
The average work week shrank to a record-low 33.3 hours from 33.5 hours, today’s figures showed. Average weekly hours worked by production workers dropped to 39.9 hours from 40.3 hours, while overtime decreased to 3 hours from 3.3 hours. That brought the average weekly earnings down by $2 to $611.39.
Workers’ average hourly wages rose 5 cents, or 0.3 percent, to $18.36 from the prior month. Hourly earnings were 3.7 percent higher than December 2007. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from November and a 3.6 percent gain for the 12-month period.
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