Pink slips are now being handed out at the fastest pace since 2003 – an economic event that may have ramifications from the ballot box to the Christmas tree.
A downturn in hiring most likely means the credit crunch on Wall Street has now moved to the general economy, as business and consumers hunker down. If it were to continue at a high rate, a dearth of hiring also could mean that any downturn would be longer and deeper than expected, since employers are often slow to rehire workers. And the layoffs are starting just before the holiday season, potentially bad news for America's shopkeepers.
"Business and households are getting as lean as they can, to ride out whatever storm they have," says Joel Naroff of Naroff Economic Advisors in Holland, Pa. "If you are worried about a potential recession, you don't fill job openings."
The latest indication of layoffs came last Friday, when the Department of Labor reported that the US shed 159,000 jobs in September, a considerable increase in the firing rate. The unemployment rate remained at 6.1 percent, mainly because a large number of Americans dropped out of the labor force. The September numbers also showed that the number of Americans out of work for more than six months is at a five-year high.
After the government reported the jobs numbers, which were worse than Wall Street expected, there were rumblings that the Federal Reserve might cut interest rates as much as half of a percentage point to back up Congress's passage of the $700 billion financial-system rescue plan. "It's a distinct possibility anytime between now and the next Fed meeting at the end of the month," Mr. Naroff says. "But it would most likely have to be a concerted effort around the world."
The quicker pace of layoffs and other economic data is causing some economists to scale back their forecasts. Scott Anderson, a senior economist at Wells Fargo Banks had been looking for the gross domestic product (GDP) to come in at 1.5 percent growth in the third quarter. Now he anticipates GDP will shrink by 0.5 percent in that period.
"It's likely [that] real consumer spending will drop at a 2.6 percent pace in the current quarter and 2 percent in the fourth quarter, the steepest drop since 1982," says Mr. Anderson.
Anderson believes the Fed is likely to cut interest rates by half a percentage point this month. He also expects a quarter of a point drop in December. "It's time to use all your guns," he says.
The drop in consumer spending is showing up in the jobs numbers for people in furniture stores, electronics retail, and department stores. Even restaurants are reducing their staffs. Losses in the retail sector amounted to 40,000 jobs, the second-largest loss next to construction.
Problems in the consumer economy point to more trouble ahead, say some labor market specialists.
Part of the consumer economy's problem is the drying up of funds. Most consumers have either spent the checks sent out by Congress this spring or used them to pay down debt. Now they are getting caught up in the credit market crisis, says Bill Hardekopf of LowCards.com, a consumer website. "Credit markets seem to be dropping for a significant number of customers, especially those with riskier credit," he says. He has noticed that the credit-card companies seem be reclassifying their customers downward. An individual considered to be an excellent credit risk may be downgraded into a good category. "So instead of getting the 8.99 percent rate that was advertised, instead they get the 10.99 percent rate," he says.
But it's not totally bleak, says Roy Krause, president of Spherion, a staffing and recruiting firm based in Fort Lauderdale, Fla. For the past 18 months, temporary hiring has been dropping each month. In September, he notes, it was down 9 percent compared with September of last year. The 9 percent drop was the same as August. "The good news is that it was not getting any worse," he says.
Part of the problem in the job market is the economic uncertainty. Now that Congress has passed the $700 billion bank-rescue plan, he hopes it will remove some of that uncertainty. Late Saturday, a state judge in New York at Citigroup's behest issued a temporary restraining order to prevent Wells Fargo from buying Wachovia. But the battle over Wachovia may be positive for the financial markets, he says. "It shows business at the right price will look at [mergers] and expansion," says Mr. Krause.