US unemployment up – and spreading

January's loss of 598,000 jobs hit factory workers and professional and business-services employees hardest.

Carlos Barria/Reuters
As unemployment rises, job-seekers are becoming more tenacious. In Miami earlier this month, hundreds of applicants camped out for three nights for a chance to file applications for 35 firefighting jobs.

The US jobless problem is getting worse – and it is now spreading from housing and manufacturing to almost every sector of the economy.

In the clearest signal yet that business has gone into survival mode, the nation’s unemployment rate climbed to 7.6 percent in January, up from 7.2 percent in December. The economy also shed 598,000 jobs, the worst performance since the end of 1974. Over the past two months, more than 1 million Americans have lost their jobs.

“This is about as bad as it gets,” says Dan Meckstroth, chief economist at Manufacturers Alliance/MAPI in Alexandria, Va. “There is no good way to spin this as anything good.”

Pressure on Congress

The grim news on the job front is putting Congress and the Obama administration under more pressure to pass a stimulus package and concoct a financial bailout. (Click here for an update on the stimulus.) The prospect of Congress finally passing a large stimulus bill helped push the stock market higher on Friday morning.

Since October, the nation’s unemployment rate has climbed by 1 full percentage point, a pace of layoffs not seen on an annual basis since 1982. Given the number of announced layoffs and the rising number of new claims for unemployment, some economists expect the February job losses could be even worse.

“If there is any silver lining to the news, [it's that] we are seeing job cuts so widespread and massive, it may mean everyone is making all their job cuts all at once,” says Joel Naroff of Naroff Economic Advisers in Holland, Pa. “We are compacting an adjustment process that might have taken two years into 12 months so we may get through it sooner.”

Mr. Naroff says the last time the economy was in such bad shape – in the 1980s – business did not have the same information to know the extent of the downturn. “Now, business knows what is happening on a real time basis,” he says.

Manufacturing hit hardest

The sharp layoffs are especially noticeable in the manufacturing sector, which shed 207,000 jobs in January, or over 1.5 percent of all factory jobs. In the past 13 months, the manufacturing sector has axed 8 percent of its workforce, says Mr. Meckstroth. The losses in the automobile industry are especially high with the industry shedding 21 percent of its workforce since December of 2007.

However, the layoffs are now spreading well beyond manufacturing. Last month, professional and business services, a source of strength for the economy in the past, lopped off 121,000 positions. Retailers, after not hiring many temporary workers in December, still cut 45,000 jobs last month. Hotels, beset with lower occupancy, let go 28,000 employees.

The layoffs are also spreading to more experienced and educated workers, says Andrew Stettner, an analyst with the National Employment Law Project (NELP) in New York. “In the past, the layoffs were lower-wage workers,” he says. “Jobless workers are now more educated than they were in the 2002 recession.”

Older workers at risk

The jobless are also older, NELP found. The number of laid-off workers 45 years or older is twice as high as in the 1980s recession.

As the layoffs spread, some economists are concerned about the negative feedback affect. “The loss of jobs leads to weaker consumer spending and that leads to yet more job losses,” says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla. “We effectively need a big slap in the face, which is what the fiscal spending package will do.”

However, in an analysis of the jobs numbers, economist Nigel Gault of IHS/Global Insight worries that by the time Congress acts and the money starts flowing, it will be too late to help.

“Unfortunately, the downward momentum in the economy is so steep that it is hard to see how the package can kick in quickly enough to make much difference to 2009,” he writes.

Delayed action is still better than no action, Mr. Brown says. If Congress does nothing, the jobless could be out of work for years, leading to an economic depression. “The idea is to restore confidence and get people to calm down and prevent further job losses,” he says.

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