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Facing the Recession :
How Bad Will It Be?
PREVIOUS ISSUES
One sure sign that the economy is still stuck in neutral: Job losses continue to mount. And there are few signs that the situation might be reversed before early next year. Payrolls shrank by 51,000 jobs in July, the Labor Department reported Aug. 1, extending declines to seven straight months.
The losses aren't accelerating, which is a good sign. The loss for June was revised to 51,000 from a previously reported 62,000. But it’s a steady decline. So far this year, a net 463,000 jobs have disappeared, contrasted with the creation of 1.1 million jobs in 2007.
The economy tends to weaken before job growth suffers, and often growth perks up before jobs increase. Despite this lagging nature, the poor job outlook will serve as another reason for officials at the Federal Reserve to hold interest rates steady for a while longer despite their desire to boost growth.
The nation’s unemployment rate worsened to 5.7%, up from 5.5% in June. We expect it to rise to about 6.3% next year. The slack should thwart any rise in wages, despite the impact of record energy prices. The Labor Department said average hourly earnings for the 12 months through July were up 3.4%, the same pace as the past few months.
That’s probably higher than what the Fed would like, but the lack of new jobs and the ongoing rise in unemployment will keep wage increases in check going forward. If weak job growth helps keep wages and prices from rising too much, the Fed can avoid raising rates near term.
The July employment report confirms the outlook for a weak second half. The jobs report follows the Commerce Department report on July 31 that gross domestic product growth rose 1.9% at an annual rate in the April-June quarter after increasing 0.9% in the first quarter. As the Fed noted in a July survey of economic conditions nationwide, "Most districts reported labor markets as unchanged or slightly weaker." It also found that "wage pressures were generally modest."
Among major segments of the labor force, declines continue in manufacturing construction and retail, and appear to be broadening. For example, financial sector employment, which began to weaken in 2007, showed some stability earlier this year but has resumed its decline. Gains continue in health care.
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