The report Tuesday of worsening conditions in the auto market has led to a deepening of gloom on the employment front. Many private sector forecasters now expect workplace conditions to weaken well into 2009.
In fact, these forecast might prove to be optimistic. Housing will probably not bottom before 2010 at the earliest, and given that Alt-A and option ARM resets run at high levels through 2011, it’s an open question how long it will be before we see improvement on that front. My view is we are not likely to see much pickup in the economy until housing has at least stabilized.
From the New York Times:
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…
“It’s a slow-motion recession,” said Ethan Harris, chief United States economist for Lehman Brothers. “In a normal recession, things kind of collapse and get so weak that you have nowhere to go but up. But we’re not getting the classic two or three negative quarters. Instead, we’re expecting two years of sub-par growth. Growth that’s not enough to generate jobs. It’s kind of a chronic rather than an acute pain.”…
Mr. Harris expects tepid economic growth and a shrinking labor market to persist through the fall of 2009….
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..
On Thursday, the Labor Department will release its snapshot of the job market for June. Economists generally expect the report to show 60,000 more jobs lost, marking the sixth consecutive month of decline.
But many anticipate the unemployment rate will nudge down a little bit, swinging back from an abrupt climb that could have been exaggerated by survey glitches in the previous month, when the rate jumped by half a percentage point — the sharpest one-month spike in 22 years.
If the unemployment rate were to hold steady or rise, that would likely spook markets, underscoring the impact of the economic slowdown….
Recent indications lend credence to the view that the job market is in the grip of a sustained downturn. Three weeks in a row, new unemployment claims have exceeded 380,000, a level generally associated with recession. Construction spending fell in May. The University of Michigan Consumer Sentiment Survey, which tracks attitudes about business and personal finance, has dropped to a depth last seen in 1980…..
With job losses growing and working hours shrinking, many paychecks are eroding, prompting millions of families to cut their spending. Soaring prices for food and gasoline are overwhelming modest wage gains for most workers, leaving households with even less money to spend. All of which deprives struggling businesses of sales, prompting them to shed more workers, sending the cycle down another turn. Starbucks announced on Tuesday that it would close stores and eliminate up to 12,000 jobs, about 7 percent of its work force.
The fear of a downward spiral prompted the Bush administration to unleash $100 billion worth of tax rebates…Economists expect the rebates will continue to help retail sales through the summer…
Many experts expect the economy to then be pulled back into the weeds by the same forces that have led the downturn — declining home prices, tighter credit and leaner paychecks.
“It’s going to be very hard to overcome those headwinds,” said Mr. Harris, the Lehman economist.