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| The home-building industry shed jobs in August as a result of a protracted housing slump. Mike Blake/Reuters |
Could a recession lie ahead? Watch the job market.
The US economy lost 4,000 jobs in August. Home builders, factories, and schools were hit hard.
By Mark Trumbull | Staff writer of The Christian Science Monitorfrom the September 10, 2007 edition
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The latest snapshot of American employment showed the first monthly decline in four years, but the worst part is this: The numbers suggest a steady weakening of the job market, not just an August dive.
Factories, home builders, and public schools all saw big employment losses in August, yielding a net loss of 4,000 jobs for the nation. But what's more troubling than the negative tally, economists say, is the breadth of deceleration.
Job creation in the service sector, where most US jobs are, has been cooling – from food services to professional occupations. Healthcare is one notable exception.
"I don't think it's a one-month number," says John Silvia, chief economist at Wachovia Corp. in Charlotte, N.C. "Businesses are expecting some slowdown in the economy, and they're reacting to it by not hiring people."
Meanwhile, consumer spending has been growing more slowly, too.
These patterns raise the risk of a kind of self-fulfilling prophecy. If economic uncertainty is prompting businesses to postpone hiring, and consumers to postpone purchases, a recession becomes much more probable.
Economists generally foresee tepid growth not an outright contraction of economic activity. But what happens to the job market in the next couple of months could determine the answer to that question.
The heightened threat of recession could prompt the Federal Reserve's policy committee to take stronger action to buoy the economy when it meets next week.
It may cut its target for short-term interest rates by half a percentage point, rather than a quarter point.
"It's a very different ball- game," says Mr. Silvia. "Here you don't have a lot of margin for error."
He points to three numbers as signs of the job-market downshift. In the most recent 12 months, the economy on average has created 133,000 jobs a month. But for the most recent six months, that average has slipped to 103,000. And the average net job gain in the past three months has been just 44,000.
If that three-month total slips into negative territory in the months ahead, that would probably indicate a recession. In 2001, the Labor Department's three-month tally of net job gains veered below zero in April, as that year's recession was just beginning.
(The timing of recessions is declared after the fact by a committee of economists.)
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