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| Alternatives: Rudy Almaraz, a Ford employee, checks out a job fair at his plant in Livonia, Mich. The automaker has offered
buyouts to hourly workers. Carlos Osorio/AP |
Job losses' ramifications far-reaching
Some expect Fed to cut rates by three-quarters of a point.
By Ron Scherer | Staff writer of The Christian Science Monitorfrom the March 10, 2008 edition
Page 1 of 2
New York - The job market, one of the strongest pillars of the US economy, is starting to deteriorate.
Employers in almost all sectors are postponing or canceling plans to hire new workers. If the hiring downturn continues, the ramifications for the economy could be major:
•Many analysts say a paucity of jobs will push America's economy into a recession, if it isn't there already.
•Consumer confidence – running at a low point – could continue to fall as Americans become discouraged about their job prospects.
•The Federal Reserve, which meets March 18 to decide interest-rate policy, will be under pressure for significant rate cuts – perhaps as much as another three-quarters of a percentage point.
"This could be a big turning point in the economy," says Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C. "It's clear that we are losing momentum, and weakness in the economy is broadening."
The latest indication of weakness in the job market came Friday, when the Labor Department reported that the economy shed 63,000 jobs last month. This follows a loss of 22,000 jobs in January. Although the actual unemployment rate went from 4.9 percent to 4.8 percent, economists say a more telling number is some 644,000 individuals who in January gave up looking for work and dropped out of the labor force altogether.
"The increase in disappointed workers, the most since 2003, is consistent with across-the-board reluctance to hire," says Andrew Stettner, an analyst at the National Employment Law Project in New York.
Problems in the job market come against a backdrop of yet more turmoil in the credit markets. Banks are asking hedge funds to meet margin calls as the hedge funds' financial assets fall in value.
In addition, the stock and bond markets reacted badly to an announcement last week by Ambac Financial Group, an insurer of financial assets, that it would try to raise $1.5 billion by issuing new stock. Ambac is trying to maintain its AAA credit rating.
On Friday morning, in an attempt to shore up the credit markets, the Fed announced that it would expand a special funding facility for banks. This would make it easier for them to borrow money.
"The whole point of the funding is they need to get some normalcy to return to the banking system," says Bob Brusca, an economist with Fact & Opinion Economics in New York.
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