Dec. 6 (Bloomberg) -- The U.S. economy may be headed for its deepest and longest recession since World War II as mounting job losses take their toll on consumer confidence and spending.
Employers cut payrolls last month at the fastest pace in 34 years as the unemployment rate rose to 6.7 percent, the highest level since 1993. The 533,000 drop brought cumulative job losses this year to 1.91 million, the Labor Department said yesterday in Washington.
“Almost all businesses are in survival mode, and they’re slashing payrolls and investments just to conserve cash,” Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania, said in a Bloomberg Television interview yesterday. “We’re in store for some big job losses.”
The plunge may spur incoming President Barack Obama to come up with a fiscal stimulus package larger than the $700 billion plan some economists advocate. Obama today promised to make the “single largest new investment” in roads and public buildings as part of his plan to save or create 2.5 million jobs.
Yesterday’s figures added urgency to negotiations over aid to U.S. automakers. Democrats in Congress reached an agreement in principle with the Bush administration on providing funds to prevent a collapse of General Motors Corp. and Chrysler LLC, a congressional aide said.
U.S. stocks fell for the fourth time in five weeks as the worsening job market added to concern the recession is deepening. The Standard & Poor’s 500 Index lost 2.3 percent to 876.07, trimming its rebound from the 11-year low reached on Nov. 20 to 16 percent.
Fourth-Quarter GDP
John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said the jobs report suggests that the economy shrank at annual rate of 5 percent in the final three months of the year. That would be the biggest contraction since the first quarter of 1982.
“Consumer confidence is going to be bad,” Silvia said. “It is going to be a difficult winter for a lot of people.”
Yelena Grinberg of San Francisco is already feeling the effects of a sluggish labor market. The 26 year old has sent out more than 100 resumes since she lost her job as an administrative assistant, and has only landed one position: doing clerical work for $12 an hour over two days.
“It’s really tough,” she said, standing outside an Employment Development Department office in San Francisco. “I was so sure it wasn’t going to be hard. But no one wants to look at me,” she said, starting to cry. “I’m running out of money and I’m freaking out.”
GM, Citigroup
Job losses are likely to mount next year as the collapse in credit and slump in spending hurt companies from Citigroup Inc. to AT&T Inc. Legg Mason Inc., a Baltimore-based fund manager, said yesterday it will eliminate 8 percent of its workforce.
Payrolls in November were forecast to drop by 335,000, according to the median estimate in a Bloomberg News survey. The jobless rate was projected to rise to 6.8 percent.
Revisions for September and October increased losses by 199,000. November was the 11th consecutive drop in payrolls.
The employment slump was a key factor in determining the start of the recession. The National Bureau of Economic Research, the arbiter of U.S. business cycles, announced this week that a contraction began in December 2007, the month payrolls peaked.
Yearlong Recession
At 12 months, the recession is already the longest since the 16-month slump that ended in November 1982.
To fight the downturn, Federal Reserve Chairman Ben S. Bernanke this week outlined unorthodox policy action that officials can take beyond lowering interest rates. One option would be to purchase longer-term Treasuries on the open market to inject more cash into the financial system.
The central bank may also cut its benchmark rate from 1 percent at its meeting Dec. 15-16 in Washington. HSBC Holdings Inc. economists yesterday forecast the Fed will reduce it to zero, emulating the Bank of Japan’s efforts to defeat deflation earlier this decade.
Factory payrolls fell 85,000, the Labor Department said. The slide would have been even worse without the return of 27,000 striking machinists at Boeing Co.
Also preventing the unemployment rate from climbing even more last month was a surge in part-time workers. The number of Americans saying they worked part-time last month due to economic reasons -- either because their hours were cut or they couldn’t find full-time jobs -- surged to 7.32 million, the most since records began in 1955.
Hit to Carmakers
U.S. automakers have been particularly hard hit as sales last month dropped to the lowest level in 26 years. The top executives of GM, Ford Motor Co. and Chrysler this week appealed to Congress for as much as $34 billion in government assistance.
Lawmakers who support bailing out U.S. automakers sought to rally support for a scaled-down loan program, citing the grim jobs report as evidence that bankruptcies of any of the Big Three would be disastrous for the economy.
At least some of the acceleration in job losses is the result of the tightening grip of the credit crunch, with loss- ridden banks making it harder to borrow, economists said. Policy makers’ decision in September to let investment bank Lehman Brothers Holdings Inc. fail, while saving other financial institutions, may have contributed to the crisis.
“It’s the collapse heard around the world,” said Ellen Zentner, a senior economist in New York at Bank of Tokyo- Mitsubishi UFJ Ltd., which had the closest payrolls forecast in the Bloomberg survey. “It’s probably one of the worst decisions the Fed ever made -- to save everybody else but Lehman.”
Housing Slump
Financial firms decreased payrolls by 32,000 last month, after a loss of 31,000 in October. The report also reflected the housing slump, with builders eliminating 82,000 posts after a 64,000 drop the month before.
“We don’t get the job losses stopping until 2010,” Kurt Karl, chief U.S. economist at Swiss Re in New York, said in a Bloomberg Television interview.
To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net
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