Data point to deepening recession
The latest evidence of a deepening recession that’s already the longest in a quarter-century came Wednesday in a pair of reports that found little relief in sight.
The U.S. service sector shrank far more than expected in November, as employment, new orders and prices plunged, hurting retailers, hotels and airlines. Meanwhile, Americans hunkered down heading into the holidays, leaving retailers to ring up fewer sales and forcing factories to cut back on production.
The Institute for Supply Management’s closely watched gauge of activity in service industries, in which most Americans work, showed that for every company adding jobs, eight cut payrolls last month. That ratio led some economists to boost their forecasts for November layoffs to levels not seen since the early 1980s.
“This is consistent with payrolls falling by about 500,000” for the month, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. “Let’s hope it is very wrong.”
Analysts expect the nation’s jobless rate, when it is announced Friday, will hit 6.8%, on its way to a reading that they project could be closing in on 9% a year from now.
The view was equally gloomy in the Federal Reserve’s beige book -- the latest snapshot of business activity compiled by the Fed from its 12 regional banks. It reported that “overall economic activity weakened across all Federal Reserve districts” since October.
The beige book reported that retailers were bracing for a weak holiday shopping season, manufacturing activity had slowed sharply and bank lending was contracting as the financial sector endured its worst crisis in seven decades.
In a third report, the Labor Department said productivity, the amount of output per hour of work, rose at an annual rate of 1.3% in the July-September quarter. That was slightly higher than the 1.1% increase initially reported a month ago. And it was better than the 0.9% rise economists had expected.
Wage pressures, as measured by unit labor costs, rose at an annual rate of 2.8%. That was the biggest jump since a 4.5% rate in the fourth quarter of last year, but it fell below the 3.6% advance originally reported.
The Fed monitors productivity and wages to make sure inflation isn’t getting out of hand. But analysts say worries about the deepening recession would now trump any inflation concerns in the minds of Fed policymakers.
The institute’s report said its service-sector index fell to 37.3 in November from 44.4 in October, far below the reading of 42 that analysts had expected. Of the 18 industries in the survey, including warehousing, real estate, restaurants and wholesale trade, only one -- healthcare and social assistance -- reported growth.
One reason labor costs have eased is that companies have been aggressively laying off workers as demand has fallen. Job losses this year through October have totaled 1.2 million.
