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Job losses at 5-year high and growing

Times Staff Writers

As the presidential election season nears its climax, there is growing evidence that the country is slipping into the deepest recession in decades.

The latest marker came Friday, when the government reported that employers shed 159,000 jobs in September, far more than expected. That was the worst one-month drop in more than five years and brings to 760,000 the number of jobs that have disappeared this year.

Economists say the accelerating pace of job losses, combined with the most severe credit crisis since the Great Depression, make it increasingly likely that the government bureau that determines business cycles will eventually stamp “recession” on this one.

“This should remove any lingering doubts that the economy is in a recession,” said Dean Baker, co-director of the Center for Economic and Policy Research. “The rate of job loss is accelerating and the unemployment rate is virtually certain to cross 7% early in 2009.”

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Perhaps most telling was the reaction of Edward Leamer, director of the respected UCLA Anderson Forecast, who has repeatedly predicted that the country will narrowly skirt recession. He called the payroll decline “the first number that is really bothersome to me” and added, “August was probably the first recession month.”

August was when the unemployment rate jumped from 5.7% to 6.1%. That rate, calculated using a survey different from the one used to determine job losses, was unchanged at 6.1% in September. Economists took little comfort in that, however, pointing out that the unemployment rate doesn’t count people who have given up looking for work, nor those who have had to settle for part-time work.

“Factoring in discouraged workers, unemployment is closer to 7.9%,” said University of Maryland economist Peter Morici.

LeAndrae Coates, a 37-year-old former optician, is trying to stay out of the ranks of the discouraged.

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On Friday, he was working the computer job banks at an employment center in Lincoln Heights run by the Arbor Education and Training group. For the last six months, he’s been going to the job center four days a week, and he sends out about 10 job applications a week. In that time, he’s gotten only one in-person interview.

Coates said hiring managers have told him that they’re accepting only part-time workers because they can’t afford to pay full time. He now regrets leaving a part-time job as an optician for an eyeglass company in search of full-time work.

“The problem with this economy is different now than when I first started in the workforce,” Coates said. “It’s harder to get a job lately, and a lot of companies are downsizing.”

The economy’s fate is bearing down on the presidential contest, with Americans telling pollsters that economic recession is their top concern. Both major candidates -- Republican Sen. John McCain and Democratic Sen. Barack Obama -- addressed job losses from the campaign trail.

Speaking in a windy high school football stadium in Abington, Pa., Friday, Obama contended that the loss of payroll jobs was a direct result of the economic philosophy embraced by McCain and the Republican administration.

“This is the economy that my opponent said made ‘great progress’ under the policies of George W. Bush, and those are the economic policies that he proposes to continue another four years,” Obama said. “So when Sen. McCain and his running mate talk about job killing -- that’s something they know a thing or two about.”

McCain, in turn, blamed entrenched politicians in Washington and greedy interests on Wall Street for the nation’s economic turmoil, and told supporters in Pueblo, Colo., that the consequences were most dire for hardworking Americans like themselves.

“No one in this room doesn’t know someone that’s struggling to keep their job, their home, their healthcare, educate their kids,” he told thousands packed into a town hall at the Massari Arena at Colorado State University’s Pueblo campus. “There’s no one in this room that doesn’t know that this is the most severe financial crisis we have faced in our lifetime, and there’s no easy answers to it.”

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“Our first goal and our only objective is to help Main Street, not Wall Street and not the corruption and evil that’s in Washington, D.C., either,” he said.

The unexpectedly high job losses -- many analysts had expected the number to be closer to 100,000 -- came on the same day that the House of Representatives successfully passed the $700-billion rescue plan for the financial system. Despite that vote, stocks declined Friday, in part because of anxiety over the economy.

The grim employment picture also triggered speculation that the Federal Reserve would attempt to pump some adrenaline into the faltering economy soon by lowering its benchmark interest rate, now at 2% -- perhaps acting even before its regularly scheduled meeting at the end of the month.

“With all economic signs flashing recession, we expect a 0.5% rate cut from the Fed this month,” said Peter Kretzmer, senior economist at Bank of America Corp. in New York.

Economists noted that the bad job news was no longer confined primarily to the construction and manufacturing sectors. September’s report showed sharp job losses across the board, encompassing stores, hotels, restaurants and temporary employment.

“The job losses in retail trade, leisure and hospitality and employment services -- those are ripple effects,” said Harry Holzer, a labor economist at Georgetown University and a fellow at the Urban Institute.

Holzer said he believed the unemployment rate was likely to climb in coming months. One reason is that the September data -- collected until about the third week of the month -- did not fully reflect the convulsions on Wall Street and in banking, including the Sept. 25 collapse of Washington Mutual Inc., the biggest bank failure in U.S. history.

He and other economists say the downturn could turn into the worst since 1981-82, which lasted 16 months and saw unemployment rates approach 11%. The 1990-91 and 2001 recessions each lasted eight months.

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“I think there’s a good chance this one will be more severe than the last two,” Holzer said, “because the last two were not accompanied by the widespread financial crisis that we have now.”

UCLA’s Leamer explained that job losses have a cascading effect in the economy: Workers who lose their jobs curtail spending, which depresses demand, which diminishes profits, which in turn causes more job losses.

“It’s very worrisome because the labor market is the amplifier” for other negative economic trends, Leamer said. “If people still have their jobs and income, they will maintain their spending patterns tenaciously. But people who lose their jobs change their behavior overnight.”

Nivia Soto, a 41-year-old former garment worker, has lost two jobs in five months and is in the midst of just that sort of belt-tightening.

She has stopped shopping at Trader Joe’s, instead searching for better bargains at discount stores. She downsized to basic cable TV. Weekend dinners out, shopping trips and her buying a new car every few years are now memories.

“I’m doing a lot of praying, and that’s what’s helping,” said Soto, who was also at the Lincoln Heights job center. “You can feel people getting scared, because the hard days are coming. There’s not a lot of jobs out there.”

The sour economy points toward a dismal holiday shopping season for retailers. For the first time in a decade of making projections, Marshal Cohen is predicting an outright decline in holiday sales.

“Consumers are just not feeling rosy,” said Cohen, who studies the retail industry for market research firm NPD Group. “They don’t have the ability to stretch their credit, and they’re feeling very concerned. It’s certainly going to slow the early momentum of the season, and if you impede that, it’s going to take an awful lot to regain it.”

The shorthand definition of a recession is two consecutive quarters of a decline in gross domestic product. But the National Bureau of Economic Research, the official arbiter of when recessions begin and end, does not have a set definition and dates recessions only once they are over.

However, the NBER’s deliberations tend to give heavy weight to unemployment.

“There is little question we are in a serious labor market downturn [and] whether the National Bureau of Economic Research eventually calls it a recession is irrelevant from the standpoint of workers,” said Alan Krueger of Princeton University, former chief economist at the U.S. Labor Department. “I suspect that the labor market will continue to weaken before it improves.”

That’s one reason the House voted Friday to extend unemployment benefits an additional seven weeks beyond the standard 26 weeks for most workers and 39 weeks for workers in hard-hit states.

Although the House gave the extension a strong 368-28 vote, it’s not clear whether it will become law any time soon. The Senate adjourned a day earlier without acting on the issue and has no plans to return until after the election.

With only six weeks to go before his unemployment benefits run out, Tom Della Flora, 50, of Columbus, Ohio, said he’s swallowing hard and searching for temporary work instead of full-time.

“With the economy the way it is, nine months is just not a lot of time,” the former lumberyard worker said. When the housing market imploded, he was laid off a job making $19 an hour at a retail lumberyard. “It’s kind of a scary thought how long we can last.”

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maura.reynolds@latimes.com

tiffany.hsu@latimes.com

Reynolds reported from Washington, Hsu from Los Angeles. Times staff writers Maeve Reston and Seema Mehta contributed to this report.


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