This has just been starting. It will get much worse.
Dec. 5 (Bloomberg) — U.S. companies slashed payrolls last month at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II.
Employers cut 533,000 jobs, bringing losses so far this year to 1.91 million, the Labor Department said today in Washington. November’s drop exceeded all 73 forecasts in a Bloomberg News survey. The unemployment rate rose to 6.7 percent, the highest level since 1993.
“It’s unbelievable,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “We’re well on our way to the worst recession of the postwar period.”
The plunge may spur incoming President Barack Obama to come up with an even bigger fiscal stimulus package than economists’ projections of about $700 billion. Today’s figures also will add to pressure on the Federal Reserve to take radical steps to revive credit markets and on lawmakers to bail out the auto companies.
“This is a huge downshift, much larger than we thought,” said Jared Bernstein, an economist at the Economic Policy Institute in Washington, who will be Vice President-elect Joe Biden’s chief economist in the new administration. “The upper bound on a stimulus package is going up, not down. As the hole gets larger, the amount you need to fill it gets larger.”
Payrolls are likely to keep sliding into next year as the collapse in credit and slump in spending hurt companies from General Motors Corp. to Citigroup Inc. and AT&T Inc. Legg Mason Inc., a Baltimore-based fund manager, said today it will eliminate 8 percent of its workforce.
Obama said in a statement the job loss demonstrates the “urgent” need for a recovery plan and offers an “opportunity to transform our economy” through investments in infrastructure and alternative energy technology. He aims to save or create 2.5 million jobs over two years.
Stocks sank. The Standard & Poor’s 500 index lost 2.3 percent to 825.51 at 10:11 a.m. in New York.
Payrolls were forecast to drop by 335,000, according to the median estimate in the Bloomberg survey. The jobless rate was projected to rise to 6.8 percent.
Revisions for September and October increased job losses by 199,000. The October figure was revised to 320,000 from the previous estimate of 240,000. November was the 11th consecutive drop in payrolls.
“You are seeing the impact of the lack of credit feeding through to a lot of companies, who are very fearful,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, and a former congressional staff economist. “Personal income numbers will be awful. It is going to be a difficult winter for a lot of people.”
Fed Chairman Ben S. Bernanke this week outlined unorthodox policy action that officials can take beyond lowering interest rates. One option would be to purchase longer-term Treasuries on the open market to inject more cash into the financial system.
The central bank may also cut its benchmark rate from 1 percent at its meeting Dec. 15-16 in Washington. HSBC Holdings Inc. economists today forecast the Fed will reduce it to zero, emulating the Bank of Japan’s efforts to defeat deflation earlier this decade.
Factory payrolls fell 85,000 after decreasing 104,000 in October, the Labor Department said. The slide would have been even worse without the return of 27,000 striking machinists at Boeing Co. Economists had forecast a decline of 100,000 manufacturing jobs. The decrease included a loss of 13,100 jobs in auto manufacturing and parts industries.
U.S. automakers have been particularly hard hit as sales last month dropped to the lowest level in 26 years. The top executives of General Motors, Ford Motor Co. and Chrysler LLC this week appealed to Congress for as much as $34 billion in government assistance.
The Ann Arbor, Michigan-based Center for Automotive Research projects that a collapse of GM would lead to job losses totaling 2.5 million, including 1.4 million people in industries not directly tied to manufacturing. Chrysler yesterday announced it had cut 5,000 jobs last week.
Today’s report also reflected the housing slump and the worst credit crisis in seven decades. Payrolls at builders dropped 82,000 after decreasing 64,000. Financial firms decreased payrolls by 32,000, after a loss of 31,000 jobs the prior month.
“We don’t get the job losses stopping until 2010,” Kurt Karl, chief U.S. economist at Swiss Re in New York, said in a Bloomberg Television interview.
Service industries, which include banks, insurance companies, restaurants and retailers, cut 370,000 workers after reducing 153,000 in the previous month. Professional and business services, a category that includes temporary workers, eliminated 136,000 jobs. Retail payrolls decreased by 91,300 after a decline of 62,200.
AT&T, the largest U.S. phone company, will eliminate 12,000 jobs, striving to trim expenses as the U.S. economy falters, the Dallas-based company said in a statement yesterday. Citigroup said last month it plans to eliminate 52,000 jobs.
Education and health services industries added 52,000 jobs and government payrolls increased by 7,000.
The employment slump was a key factor in determining the start of the recession. The National Bureau of Economic Research, the arbiter of U.S. business cycles, announced this week that a contraction began in December 2007, the month payrolls peaked.
At 12 months, the recession is already the longest since the 16-month slump that ended in November 1982.
Weakest Since ‘64
The average work week shortened to 33.5 hours, the shortest since records started in 1964, from 33.6 hours, today’s report showed.
Workers’ average hourly wages rose 0.4 percent from October, to $18.30. Hourly earnings were 3.7 percent higher than a year before. Economists had forecast a 0.2 percent increase from October and a 3.4 percent gain for the 12-month period.
“Almost all businesses are in survival mode,” Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania, said in a Bloomberg Television interview. “Policy makers from the Federal Reserve to Congress and the new administration are going to have to be very aggressive.”
To contact the reporter on this story: Bob Willis in Washington at email@example.com
Last Updated: December 5, 2008 10:28 EST
By Bob Willis and Rich Miller