1.5 Million Job Cuts So Far This Year, Factory Slump Probably Worsened: U.S. Economy Preview

Nov. 30 (Bloomberg) — The recession engulfing the U.S. economy deepened this month as employers slashed more jobs and manufacturing contracted at the fastest pace in a quarter century, economists said before reports this week.

Payrolls shrank by 320,000 workers in November, the biggest one-month drop since the 2001 terrorist attacks, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department’s Dec. 5 report. The jobless rate may have jumped to 6.8 percent, the highest level since 1993.

Employment may keep deteriorating as the credit crunch continues to bite, with Goldman Sachs Group Inc. analysts forecasting a 9 percent unemployment rate by late 2009. The worsening outlook prompted President-elect Barack Obama to craft a plan to save or create 2.5 million jobs in two years to stave off what he called a “crisis of historic proportions.”

“All signals point to a very weak labor market and further weakening,” said Dean Maki, co-head of U.S. economic research at Barclays Capital Inc. in New York. “We should expect a large stimulus program shortly after Obama takes office.”

The 11th consecutive drop in payrolls would follow a 240,000 decline in October and bring the total number of jobs eliminated so far this year to 1.5 million. Factories probably reduced staff by 80,000 workers, according to the survey median.

The jobless rate was 6.5 percent in October.

The employment report, the second issued since Obama was elected president on Nov. 4, is likely to intensify pressure on policy makers to come up with additional stimulus plans.

Cutting Forecasts

As economic data deteriorated and financial markets slid, economists at Goldman last week were among those marking down their estimates for gross domestic product. The economy will shrink at a 5 percent annual rate this quarter and decline at a 3 percent pace in the first three months of 2009, Goldman’s chief U.S. economist Jan Hatzius said in a note.

The world’s largest economy contracted at a 0.5 percent pace in the third quarter and consumer spending fell at 3.7 percent rate, the biggest tumble since 1980, the government said last week.

Obama has named an economic team that includes New York Federal Reserve Bank President Timothy Geithner as Treasury Secretary-designate and former Fed Chairman Paul Volcker as head of a new White House economic panel aimed at reviving the economy.

“My first priority and my first job is to get us on the path to economic recovery,” Obama, 47, said Nov. 25 as he announced his team.

Factory Slump

Manufacturing, which accounts for about 12 percent of the economy, shrank in November for a fourth consecutive month, a report from the Institute for Supply Management may show tomorrow. The group’s factory index probably fell to 37, the lowest level since July 1980, from 38.9 the prior month, according to economists polled. A reading of less than 50 signals a contraction.

U.S. automakers have been particularly hard hit as sales dropped to the lowest level in almost two decades. General Motors Corp., under pressure after Congress delayed action this month on aid to the industry, said it will idle plants in Michigan, Ohio, Kansas and Missouri for an extra week in January.

“We are all expecting the year 2009 to be a very low year in terms of demand, not only in the United States, but globally,” Carlos Ghosn, chief executive officer of Nissan Motor Co., said in a Nov. 19 interview on Bloomberg Television. “We may be facing a couple of difficult years, with very low demand.”

Services Decline

Service industries, which account for almost 90 percent of the economy and range from mortgage lending to retailing and restaurants, also contracted in November, economists forecast another report from the ISM will show on Dec. 3.

The group’s non-manufacturing index fell to 42 last month, the lowest reading since records began in 1997, according to the survey median.

Financial firms are at the forefront of the slump in services. Citigroup Inc., the U.S. bank with the most employees, said this month it plans to eliminate more than 50,000 jobs and cut expenses as the global economy contracts. Chief Executive Officer Vikram Pandit has already cut 23,000 positions.

                         Bloomberg Survey

                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
ISM Manu Index            12/1      Nov.      38.9      37.0
ISM Prices Index          12/1      Nov.      37.0      32.0
Construct Spending MOM%   12/1      Oct.     -0.3%     -1.0%
Productivity QOQ%         12/3       3Q       1.1%      0.9%
Labor Costs QOQ%          12/3      3Q F      3.6%      3.6%
ISM NonManu Index         12/3      Nov.      44.4      42.0
Initial Claims ,000's     12/4    Nov. 29     529       540
Cont. Claims ,000's       12/4    Nov. 22     3962      4025
Factory Orders MOM%       12/4      Jan.     -2.5%     -4.3%
Nonfarm Payrolls ,000's   12/5      Nov.      -240      -320
Unemploy Rate %           12/5      Nov.      6.5%      6.8%
Manu Payrolls ,000's      12/5      Nov.      -90       -80

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: November 30, 2008 00:01 EST
By Bob Willis

Source: Bloomberg

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