Financial thoughts

Another 651,000 U.S. jobs were lost in February, adding to the millions of people who have been thrown out of work as the economic downturn deepens.

In a stark measure of the recession’s toll, the U.S. Bureau of Labor Statistics reported yesterday that the national unemployment rate surged to 8.1 per cent last month, its highest in more than 25 years. The economy has now shed more than 4.4 million jobs since the recession started in December 2007.

Economists expect that unemployment will continue to rise for the rest of the year and into early 2010, with the unemployment rate reaching 9 per cent to 10 per cent by the time a recovery begins. But even then, with so many job losses in manufacturing, economists say that many positions devoured during this recession will not be coming back.

"This is not people being on furlough for six weeks or a month or two – this is permanent job losses, and that is what makes this so difficult," said John Silvia, chief economist at Wachovia. "That is very telling in terms of how we’re really restructuring the overall economy."

Although the tally of February’s losses was grim, the 651,000 jobs lost last month were actually fewer than the number in each of the preceding two months, according to revisions reported yesterday. Some 655,000 jobs were lost in January, when the unemployment rate rose to 7.6 per cent. December’s decline was revised to 681,000, from 577,000.

On Wall Street, financial markets opened by seizing on the fact that monthly job losses were less than anticipated in February, and stocks rose at the start of trading, a day after plunging more than 4 per cent. But by 11 a.m. the Dow Jones industrial average had reversed direction and was down about 30 points.

The broader-based Standard & Poor’s 500 stock index was 0.7 per cent lower and the Nasdaq index was down 1.5 per cent.

February marked the fourth consecutive month that the economy has shed more than 500,000 jobs, a pace that underscores the magnitude of the problems facing the Obama administration as it promises to save or create 3.5 million jobs over the next two years.

Last month, U.S. President Barack Obama signed a $787 billion (U.S.) stimulus package of tax cuts, infrastructure spending and emergency aid. The first tax credits, in the form of reduced payroll withholdings, are expected to appear in paychecks beginning April 1.

But in testimony this week before Congress, federal officials again cautioned that even with the stimulus spending, a recovery will take time free copy of my credit report.

The package "should provide a boost to demand and production over the next two years as well as mitigate the overall loss of employment and income," the Federal Reserve chair, Ben Bernanke, told the Senate Budget Committee, but the timing is "subject to considerable uncertainty."

The pace of job losses has only increased since the credit crisis shook financial markets last autumn, spawning a vicious circle of economic contraction that dragged down corporate earnings, consumer spending and overall growth. And Bernanke said in testimony this week that the labour market "may have worsened further in recent weeks."

"It just feels like we’re in the teeth of the recession, and the bite is still very hard," said Stuart Hoffman, chief economist at PNC Financial Services Group. "This is economy-wide, industry-wide. It just shows the severity and the breadth of the job losses."

Economists worry that mounting job losses could make it harder for homeowners to make their mortgage payments, triggering another wave of home foreclosures, which would further depress home values and the mortgage-related securities owned by major banks.

"We’re feeling the negative fallout from the intensification of the financial crisis," Mickey Levy, chief economist at Bank of America, said. "We’re in the middle of the worst stage of job losses as well as the speed of contraction of gross domestic product."

Workers from New York to Florida, from the Rust Belt to the Sun Belt, and across nearly every sector of the economy are being affected as employers reduce costs by slashing their payrolls and cutting their capital investment.

"There’s been no place to hide," Hoffman said. "Everybody in every industry has lost jobs or is feeling insecure about whether they’re going to keep their jobs or how their company’s going to do."

Retailers cut 39,500 jobs, and the construction industry cut 104,000 jobs as the housing market remained in the doldrums and home builders all but halted new-home construction.

Manufacturers alone slashed a seasonally adjusted 168,000 jobs in February.

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