Jobs figures

Gloomy days in America

More dismal jobs figures

IF THERE were any lingering doubts that America’s economy is shrinking, the news on Friday April 4th has probably put an end to them. According to figures released that day, the economy lost 80,000 jobs in March, the third straight month that employers have trimmed payrolls. That has not happened since early 2003, when the economy was emerging from a recession. The unemployment rate also jumped to 5.1% in March from 4.8% in the previous month.

The economy’s stewards have naturally shown a reluctance to admit just how weak it has become. But that is starting to change. Ben Bernanke, chairman of the Federal Reserve, admitted for the first time earlier in the week that the economy may contract in the first half of the year. Janet Yellen, the influential president of the San Francisco Fed, said much the same on Thursday.

The jobs report was grim. Revisions to the number for January and February cut payrolls by another 67,000. In March, most big industries shed jobs; education and health care, two industries that are largely recession-proof, were the only big ones to add jobs. The deepening housing slump continued to batter construction companies. Another 51,000 building workers were chopped, bringing the total for the past 12 months to more than 350,000. Manufacturers fared almost as badly, and have now lost jobs for 21 months on the trot.

The fear now is that consumers will go into their shells. Car sales in March plunged to the lowest level in nearly ten years (excluding the month after Hurricane Katrina struck in 2005). Those with jobs are seeing smaller pay rises.

One ray of hope is that recessions in America have changed over the years. Thanks to a more flexible economy, smarter central bankers and lower inflation, recessions tend to be shorter and shallower. But companies are also more cautious. They are usually reluctant to cut staff, but when the process starts, they can slash jobs quickly and are not eager to resume hiring in a hurry. That has led to a series of “jobless” recoveries after recessions in the early 1990s and at the start of this decade. Even if this recession is as shallow as the last one, the employment downturn probably has some way to run.

The housing crisis remains at the centre of the economic slump. New-home sales are down by 30% from a year earlier and prices for all home sales in January dropped by nearly 11%, according to the S&P/Case-Shiller index. The stock of unsold houses remains sky-high, which means the pressure on prices and sales will not end at anytime soon.

The turmoil in the financial markets is making matters worse. Although nerves have settled a bit after a few hair-raising weeks, the red ink on Wall Street will keep flowing. Banks have written down at least $150 billion in assets over the past six months, and may have a similar amount of writedowns to come. All of this has contributed to a tightening of credit everywhere. Tim Geithner, the president of the New York Fed, says the capital markets are still “substantially impaired”.

All of this points to more interest-rate cuts by the Fed, with a quarter-point rate cut at the next meeting at the end of April widely expected. The Fed’s benchmark rate is down to 2.25%, so there isn’t much room for another round of half- and three-quarter point cuts.