The job market's big slump
The month of May had the sharpest increase in the US unemployment rate in 22 years.
The United States is now in a jobs recession.Skip to next paragraph
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For five consecutive months, there has been a steady loss of jobs, mostly in construction and manufacturing. Now, the job losses are spreading to restaurants, retailers, airlines, and even professions such as accounting. Teens are having an especially tough time finding work this summer.
The lack of hiring and increase in firing have wide ramifications for the US. The job losses will probably intensify the debate in the presidential campaign over who can best stimulate the economy. With more of their constituents out of work, members of Congress may act to provide additional aid to the unemployed. And a higher rate of unemployment – it hit 5.5 percent in May – may put additional pressure on the Federal Reserve, which has indicated it may have stopped lowering interest rates for now.
"The economy is now literally at stall speed," says Bob Gay of Fenwick Advisers in Rye, N.Y. "When the economy is operating at its potential, we can create about 100,000 jobs a month. But now, we are losing about 50,000 jobs a month."
The latest evidence of job slippage came on Friday, when the Department of Labor reported that the unemployment rate moved up 0.5 percent in May from April – the sharpest increase in the rate in 22 years. At the same time, the payroll survey found a net loss of 49,000 jobs, which means the economy has lost about 300,000 jobs so far this year.
The latest numbers may have been somewhat swayed by a large increase in the number of teenagers looking for work. Last month, the labor force increased by 577,000, including 261,000 who were between 16 and 19 years of age.
"In the recent past, the labor-force participation by teens has been very low," says Richard DeKaser, chief economist at National City Corp., a bank based in Cleveland. "But it looks like kids are back in the job market in a very aggressive way."
The challenges in the job market come at a time when many Americans are getting their tax-rebate checks in the mail. Discounters, such as Wal-Mart, have reported a sharp increase in sales as some of the money is spent instead of saved.
Some of that money is also going to pay for gasoline. Last Friday, the price of oil soared by $10.75 to $138.54 a barrel. On Saturday, gasoline hit an average of $4.01 a gallon in the US, according to GasPriceWatch.com. This is causing people to cut back on eating out, traveling, and buying impulse items.
"The full bore of the $4-a-gallon gas price did not hit until May," Mr. Gay says. "Now, people are more aggressive at cutting back their discretionary spending, and I expect we will see the full effect of that in the coming months."
Until April, it appeared that employers were trying to keep their workforce. But in the past two months, announced job cuts have soared, according to the Chicago outplacement firm of Challenger, Gray & Christmas. Last month, companies announced 103,522 layoffs, the highest pace since December 2006.
"I'm concerned layoffs are moving to a new level," says John Challenger, the company's CEO.