Real Economy Crunch Arrives: Layoffs Rise Sharply

When Goldman announced layoffs last week (3200 people, or 10% of its staff), it said there was no longer any place to hide.

Unemployment claims are increasing at a pace that has caught some economists by surprise, indicating that the real economy downturn is picking up momentum at a rapid pace. Because many jobs, even low-level ones, entail training in company specific procedures (just think of the computer-related activities), employer has seemed reluctant to fire staff, and some had cut hours rather than axeing them. Now many businesses apparently no longer have that luxury.

From Louis Uchitelle at the New York Times:

Layoffs have arrived in force, like a wrenching second act in the unfolding crisis. In just the last two weeks, the list of companies announcing their intention to cut workers has read like a Who’s Who of corporate America: Merck, Yahoo, General Electric, Xerox, Pratt & Whitney, Goldman Sachs, Whirlpool, Bank of America, Alcoa, Coca-Cola, the Detroit automakers and nearly all the airlines.

When October’s job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.

“My view is that it will be near 8 or 8.5 percent by the end of next year,” said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s…..

Yves here. A very important point often missed in the discussion of unemployment figures is how they have been degraded refined over the years, with certain types of workers that used to be included in the labor pool now excluded from the “headline” unemployment figure, known as U-3. U-6, another measure of unemployment that has the broadest measure of unemployment (“Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers”). One can debate whether that figure is too inclusive, but it is closer to how many EU members define unemployment than the widely-reported U-3. U-6 was 11.0% in September, while U-3 was 6.1%.

Back to the Times:

The broadening layoffs are most pronounced on Wall Street, in the auto industry, in construction, in the airlines and in retailing. The steel mills, big suppliers to many sectors of the economy, are shutting 17 of the nation’s 29 blast furnaces — a startling indicator of how quickly output is declining as corporate America struggles to adjust to the spreading crisis.

“We have seen a softening order book in the most dramatic ways in the last week,” said Tom Conway, a vice president of the United Steelworkers of America, adding that layoffs in the industry “are just starting now.”

In September alone, 2,269 employers each laid off 50 people or more, the Bureau of Labor Statistics reported, up sharply from the spring and summer months, and the highest number since September 2001, when the aftermath of the 9/11 attacks coincided with a recession to spook employers. A spike in 2005 was related to Hurricane Katrina.

The financial services industry has been cutting jobs since last summer, when the credit crisis took hold. By some estimates, 300,000 jobs will disappear from banks, mutual fund groups, hedge funds and other financial services companies before the crisis subsides — 35,000 of them in New York…

The current unemployment rate, 6.1 percent — up more than a percentage point since April — is still relatively mild by post-World War II standards. The highest level since the Great Depression, 10.8 percent, came in November and December of 1982 as the economy was shaking off a severe recession..

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  1. Anonymous

    The BLS numbers are garbage. Real unemployment rate = 12%.

    EVERY TIME THE NONFARM NUMBERS CITE 100K job loses/month they NEGLECT to mention that population growth requires 150k/month.


  2. Anonymous

    Another thing to keep in mind: In this dual-income-earning-household era in the U.S., doubling the unemployment rate will cause foreclosures to essentially quadruple.

  3. Anonymous

    I apologize for being completely off topic. But I have a nagging question that perhaps someone can answer and explain. In Australia we can pick how our pension monies are invested : shares only, socially responsible shares, etc etc through to capital stable then cash. We can change monthly, and mix the components.
    Over a year ago I changed from shares only to 100% cash and it has been paying monthly about 0.5%, or around 6%pa. Quite a happy situation as shares plummet, but then so has the $AU.
    Then two months ago we got the additional option of Australian Fixed Interest. It seemed to do well in the first month so I switched to 50% cash and 50% Australian Fixed Interest.
    I have just received my monthly statement. My cash component dropped to about 0.1%pm, but the fixed interest payment was an astounding 2.6%pm, or 27%pa.
    I am not unhappy, but can anyone explain how this can come about?

  4. Anonymous

    If it’s too good to be true then you should move back to the conservative believable holding account or absolute cash. The real question is if you can ever get your funds out when the time comes.

  5. Viv

    I believe we could see global unemployment of more than 20% plus. All the stats these days are slightly fudged, altered, twisted etc.

    I believe U-6 is a better indicator, and could well hit 20%.

    Also, China will probably be in a recession soon, there’s no way it can avoid one. The biggest credit bubble in history as burst! US debt to GDP is around 360%, all of the figures point to a monumental correction and bust. Roubini is wrong in one respect, this is going to be much worse than the great depression. It’s just a logical conclusion,

    Biggest Credit Bubble Burst + Huge Debt Burden of trillions + Unstable financial system with weapons of mass derivatives + deflation + currency crisis + energy crisis + hedge fund bust + Hank Darth Vader Paulson and Ben the Death Star Bernanke pushing on a string = monumental bust lasting a decade or more.

  6. shayre

    In addition to all the great points made so far, another thing to consider is that over the last 10 years, a major driver of employement has been self-employment.

    So, these people still show up as fully employed, even though they may now be making significantly less than what some unemployed people receive from unemployment insurance.

    Yves, I’d love your thoughts.

    Sukh Hayre
    Vancouver, Canada

  7. shayre

    Markets will bottom when Americans begin to beg for socialism. Everyone will be looking for a handout/hand up.

    Long-term, all the efficiencies and technological improvments will allow to gain all the benefits we’ve been waiting so long to come about. All the leisure time that technology was to free up.

    Mark my words, within the next decade, we will enter a period where making ends meet for families will only require one person to go home, while the other can stay home and raise the kids. This is not meant to be a conservative or a socialist point of view. It is just how I see things playing out. But before we get there, there will be pain. Life savings and home equity will be wiped out. And then we start all over again. For the better. This might not make sense right now, but in time, it will.

    People are waking up to what the Shock Doctrine (Naomi Klein) has been all about. A New Golden Age (Ravi Batra) is close at hand.


    Sukh Hayre
    Vancouver, BC

  8. shayre


    last comment corrections :)
    “will only require one person to go home, while the other can stay home and raise the kids.” should have read:

    will only require one person to go to work, while the other can stay home and raise the kids.

  9. Paul Andrews

    on the question re: fixed interest.

    The fixed interest may be Australian company corporate bonds. The higher interest rate would largely be due to a higher risk of default, so unless you want to risk losing that money you might want to consider switching back to cash. You should be getting much more than 0.1% pm in cash though, as there are government guaranteed bank accounts paying 7 to 8% pa.

  10. Anonymous

    Thank you anon 3.29, and Paul. This is UniSuper, representing all Australian Universities; so hopefully I can get my money out. But their prudence might be another matter.

  11. Anonymous

    Anyone of average intelligence that wishes to visit the BLS site and read how the birth/death model of ’employment’ is calculated will certainly realize that their stats are simply an approximation.

    In fact, the BLS mentions on its site that the birth/death model might not track accurately during downturns in the economy.

    So we have in place a system that works better in good times than bad. How convenient for TPTB.

  12. Anonymous

    People in the trades are never counted. Painters, carpenters, landscapers, plumbers, many of use do not get unemployment being self employeed. Many of us pay cash to some of our employees. I had to lay off 5 men this year and now myself.

  13. Anonymous

    On October 18 Yves noted:

    “In the 1930s, the government had another major lever, however, to get credit markets going again in the 1930s. RFC preferred stock, unlike the preferred shares that Treasury is going to buy today, came with equal voting rights to common. The RFC exercised this to put its own managers in place at major financial institutions. The result was a distinctive type of state-capitalism. Arguably, Treasury might have done better to take preferred stock that would give it stronger control over bank management.”

    Isn’t is possible that in order to mitigate some of the destructive impacts of credit contraction, there should be Federal “managers in place at major financial institutions”?

    Can we have some discussion of this policy option? The bank managers are clearly on strike; if they were railroad workers or air traffic controllers, the cops or troops would have been in control within hours.

    Can it be that we will fall into depression because of a surfeit of politeness toward bank managers? Surely this option (that has been exercised by the US government before) needs to be one of the top consderations today.

  14. Anonymous

    Many of you seem to be missing an important point – the error bias of any particular measure of unemployment is NOT as important as the CHANGES in the values, which are clear signals of labor market degredation. If U-6 is higher than U-3 by 3 pp, then if the “official” U-3 increases by 1 pp, U-6 will as well. The actual number is much less important than the changes in the measure you choose, because that is what measures if the labor market is getting better or worse and by how much.

    That said, I must admit I am a bit astonished at how incredibly conservative the predictions of official unemployment are, given the severity of the debacle, both real and financial. If the official UR does not go beyond 9%, yes it is high, but is it worth all this panic??

    Pascal B, Montreal

  15. Jojo

    @Pascal B, Montreal said “That said, I must admit I am a bit astonished at how incredibly conservative the predictions of official unemployment are, given the severity of the debacle, both real and financial. If the official UR does not go beyond 9%, yes it is high, but is it worth all this panic??”

    The point is that the “official” figures in just about everything are juiced to make the problem seem less consequential than it really is. 9% government UR would probably be closer to 18% real. You can’t fix a problem if you don’t acknowledge that you have a problem!

    You might also take a look at:


  16. Anonymous

    jojo. I get your point. My main question is this: since the UR as measured in the 1930s increased to roughly 20% during the Great Depression, what would that be equivalent to for a UR as measured today? 15%? 12%? Has the measure changed that much in the last 80 years that a 25% UR is now equivalent to 8%?? I totally get the fact that unemployment is dramatic jojo. I am an economist myself and I fully understand the human tragedy behind it all. What I am saying is that any particular measure is biased no matter what. It is more important to look at the direction of the measure than the actual number… althugh having a general idea of what the number means is indeed important – which is why I ask my question: any guesstimate of what 25% UR in 1930 would be equivalent to for today’s imperfect measure of unemployment?

    Pascal B, Montreal

  17. Kurt Cagle

    Concerning the unemployment rates – actually, it matters fairly significantly how these numbers are calculated. If your measures are fairly narrow (i.e., only those people that work for corporations larger than 1000 people, that work full time under W2 contracts, where full time is defined as 40 hours) then the measure is not only going to show a degradation of a comparatively small percentage of the work force, but the rate of change of that workforce (which is likely more stable than you would expect with part time or self-employed individuals) is also going to go up the smallest. It also gives an unrealistic number that probably diminishes the overall obligation that the government has to pay unemployment insurance on.

  18. Anonymous

    that is a good point, kurt. The dynamics of the underlying “unemployed” population is indeed extremely important to get an honest picture of how to read the changes of the chosen unemployment measure. So kurt: any guess on what would be an equivalent UR today of 20% in 1930?

    Pascal B

  19. Anonymous

    Yves and others (including Kevin Phillips), you are simply incorrect that the headline unemployment rate has been degraded. The same methodology for what is now U-3 has been in place since the late 1960s. It’s based on a monthly household survey of 60,000 households. Respondents are either employed, unemployed (looking for work and available to work) or not in the labor force. The definition of discouraged workers was changed in the mid-1990s, but that had no effect on the headline rate–they were always counted as not in the labor force. Only about a third of the unemployed file unemployment claims and receive benefits.

    Contrary to popular belief, self-employment has not been growing much faster than overall employment.

    I am a labor market economist, I have read the BLS documents and talked with BLS staff. Please, do the research before you spread bad rumors.

    As to a different measure, nonfarm payroll employment: current year numbers are estimated based on a sample of employers and the birth-death model. Data for past years are based on employment reports from all employers in the nation–they all make quarterly tax reports to employment departments across the country.

    BLS’s latest preliminary estimates were surprisingly good this year–very little revision (compared to big revisions the last two years). The birth-death model improved the estimating procedure. See and

    I agree with first Anonymous that 150 K jobs need to be created each month just to keep up with population growth, and so a loss of 100 K is really an additional 250 K in unemployed, more or less. However, with a labor force of 155 million, that amounts to an increase in the unemployment rate of one or two tenths of a percent. And I do agree with using both U-3 and U-6, as well as tracking the labor force participation rate, to get a full picture of the labor market.


  20. Yves Smith


    I must differ with you. Fed economists have told me that they don’t trust anything they get from the BLS.

    I suggest you look at the Handbook of Key Economic Indicators, page 15-16, which you can find here:

    It discusses at length changes that were made in BLS methodologies in 1994 that make results before and after not comparable. The text states:

    Broad classifications remain constant in definition, but questions that determine which classification respondents fall into have changed significantly for some series. Importantly, data before and after the redesign are not directly comparable despite an apparent consistency in most broad definitions…..Both the level of unemployment and the labor force appear to have been significantly affected by the 1994 Household Survey Resesign, as discussed further below.

    The details follow.

    You claim to be a labor economist, yet appear unaware of how the basic survey instrument that forms the foundation of unemployment measures has changed over time.

  21. Yves Smith


    The clearest indicator is that when the BLS made its changes in survey methodology. it ran a so-called Parallel Survey with the old methodology alongside the new survey for a few months in 1994. The Parallel Survey was discontinued, allegedly for budgetary reasons. The findings at the time were that the new methodology produced an unemployment rate 0.5% lower than the old rate.

  22. Jojo

    As can be seen from this BLS extract, WHO is counted as employed is VERY flexible. If you work just 1 hour in a week, it appears that you are added to the employed category. Not very realistic but good for politicians.

    Who is counted as employed?

    Not all of the wide range of job situations in the American economy fit neatly into a given category. For example, people are considered employed if they did any work at all for pay or profit during the survey week. This includes all part-time and temporary work, as well as regular full-time year-round employment. Persons also are counted as employed if they have a job at which they did not work during the survey week because they were:

    * On vacation;
    * Ill;
    * Experiencing child-care problems;
    * Taking care of some other family or personal obligation;
    * On maternity or paternity leave;
    * Involved in an industrial dispute; or
    * Prevented from working by bad weather.

    These persons are counted among the employed and tabulated separately as “with a job but not at work,” because they have a specific job to which they will return.

    But what about the two following cases? George Lewis is 16 years old, and he has no job from which he receives any pay or profit. However, George does help with the regular chores around his father’s farm about 20 hours each week.

    Lisa Fox spends most of her time taking care of her home and children, but, all day Friday and Saturday, she helps in her husband’s computer software store.

    Under the Government’s definition of employment, both George and Lisa are considered employed. They fall into a group called “unpaid family workers,” which includes any person who worked 15 hours or more in a week without pay in a family-operated enterprise. Such persons contribute significantly to our productive effort and are an important part of our labor supply, particularly in agriculture and retail trade. However, unpaid family workers who work fewer than 15 hours per week are counted as “not in the labor force.”

    BLS link


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