The job market's big slump

The month of May had the sharpest increase in the US unemployment rate in 22 years.

Stephen J. Carrera/Special to The Christian Science Monitor
Looking for work: Chicago resident Kathy Henry (l.) was laid off from an advertising company last August. In February, the mother of three children saw her unemployment benefits run out.
SOURCE: Department of Labor /AP

The United States is now in a jobs recession.

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.

Last Friday, as the price of oil soared, Wall Street reacted badly, with the Dow Jones Industrial Average falling 394.64 points.

"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 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.

Spherion, a staffing and recruiting agency based in Fort Lauderdale, Fla., says its temporary-workers business is still "surprisingly" steady. However, "We're seeing more caution from clients on permanent and direct hiring," says William Grubbs, chief operating officer. Companies are also taking longer to make decisions on hiring, he says. "There are still pockets of strong demand, like engineering," he says, "but it is certainly a mixed message."

Advocates for the unemployed hope the latest numbers persuade Congress to pass an extension of unemployment benefits – similar to what it did in March 2002. The Senate has already passed such an extension, and the House has included it in the Iraq war funding bill. On Friday, Rep. Sander Levin (D) of Michigan and two other leading sponsors of extending the benefits wrote President Bush, asking him to clarify his position on the issue.

In an e-mail, Kevin Smith, press secretary for the office of Rep. John Boehner (R) of Ohio, told the Monitor, "Many members support extending unemployment benefits, and the House should consider this legislation as a separate matter."

An extension of the benefits, which would cost about $11 billion, would help stimulate the economy, says economist Jeffrey Kling, a senior fellow at the Brookings Institution in Washington. "It essentially puts money into the pockets of people who will spend it, and it's targeted to people who need it," he says.

That would be the case for Chicago resident Kathy Henry, who was laid off from her job at an advertising company last August when the company lost a large account. In February, the mother of three children, all of whom are living at home, saw her unemployment benefits run out. "I must have had 100 interviews, and no one wants to hire," the college graduate laments. "An extension of unemployment benefits would give me more time to look for a job, and I would be less stressed about my bills."

It would also help Michael Cottle, an information-technology consultant in Browns Mills, N.J., who was laid off in April 2007. The father of four went back to school for additional IT training and saw his unemployment benefits end last month. "In the past, I've had no trouble getting a job," he says. "But then there was not such a huge number of applicants."

Mr. Cottle estimates that he has applied for 75 jobs but has had only two interviews. "If they extended unemployment, it would give us a little extra leeway," he says. "I am actively seeking work. I haven't given up."

Some additional economic stimulus might also help Chantel Anderson, who was laid off last September from her job as an accountant at an auto dealership in Frederick, Md. In March, her unemployment benefits ran out, and she and her husband depleted their savings. Now, the mother of an 11-year-old is working from 3 p.m. to midnight.

"I don't see my daughter until the weekend because of the hours," she says. "Honestly, I was sending out 20 to 30 résumés a day, including Saturday and Sunday. But even though people are posting jobs, they aren't hiring."

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