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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.
from the September 10, 2007 edition
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Even one negative month is a bad sign. After all, that hasn't happened since 2003, when the economy was still finding its footing from the previous recession.
But monthly numbers fluctuate widely. And the initial number always gets revised. That's why it's the overall pattern, such as three-month totals, that's key.
"This is a trend" of deceleration, says Rajeev Dhawan, director of Georgia State University's Economic Forecasting Center in Atlanta.
The reasons: A protracted housing slump is affecting many homeowners, realtors, home builders, and the mortgage industry. The automotive industry is undergoing major restructuring. And in the past month, Wall Street firms that thrive on lending or borrowing are feeling the pinch of tighter credit conditions as investors scrutinize default risks.
More broadly, the chief executives who control much of the nation's hiring have grown less confident, Mr. Dhawan says. "It becomes a case of who's going to move first" and hire, he says. "When nobody moves, it becomes a slowdown."
Most sectors of the economy have been expanding their employment this year – even in August. But the pace in many industries is cooling. This reflects slowness to hire more than outright layoffs.
Even in the growing food-services sector, however, some businesses are downsizing.
Mino Settepani, who owns a New York City bakery, says he has cut six positions in the past three years. As costs have risen for milk, eggs, and gas, some of his bread and pastry business became unprofitable.
Not far away, Alberto Ramirez says he looked for work for three months before finding employment this year at the San Marco Pizzeria. "They usually say they aren't hiring," he says as he makes some pizza dough.
America must add some jobs each month just to keep pace with the arrival of new people in the workforce.
In the current economic expansion, the unemployment rate has remained low, and it was unchanged in August at 4.6 percent.
But economists expect that rate to rise unless job creation picks up.
James O'Sullivan, an economist at the investment bank UBS, says the big risk is if credit-market turmoil causes a wider loss of confidence. "Such weakening can become self-perpetuating, with weaker spending leading to weaker employment leading to weaker spending, and so on," he wrote Friday in a report to clients.
But there's nothing inevitable about this potential spiral, he adds. During a global crisis in 1998, business confidence bounced back after the Fed cut interest rates.
"We're at the cusp where it can go either way," Dhawan says.
He sees a 25 percent chance of recession. His brighter scenario is a few months of poor job creation, and then a rebound as the credit squeeze eases. Despite the housing downturn, he says most US consumers "are still pretty healthy."
• Nicole Hill contributed to this story from New York.
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