By JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer 2
hrs 12 mins ago
WASHINGTON A vicious cycle of vanishing jobs and stresses on American
consumers is spelling deeper trouble for the already sinking U.S. economy.
All the economy's woes a housing collapse, mounting foreclosures, hard-to-get
credit and financial market upheaval will confront President-elect Obama when
he assumes office early next year. Obama has shifted from campaign mode to the
task of building a new Democratic administration. A top priority will be
quickly assembling his economics team, including the secretaries of Treasury,
Commerce and Labor.
On the crucial jobs front, the situation is likely to move from bad to worse
next year.
Employers have slashed jobs in the first nine months of this year. A staggering
760,000 losses have been racked up so far.
And more are expected. The government's monthly jobs report is due out Friday,
and net job losses for October are expected to total about 200,000. The
unemployment rate, now 6.1 percent, is expected to rise to 6.3 percent.
If it does, it would match the highest unemployment rate that was logged after
the last recession, in 2001. The jobless rate hit 6.3 percent in June 2003 and
then started to drift downward.
Many expect the jobless rate to climb to 8 percent, possibly higher, next year.
In the 1980-1982 recession, the unemployment rate rose as high as 10.8 percent
before inching down.
Stressed consumers are cutting back on their shopping and trying to trim their
debt. Economists believe consumers cut back on borrowing in September, as
another report to be released Friday is expected to show.
Nearly half a million Americans filed new claims for unemployment benefits in
the last week alone, and skittish shoppers handed many retailers their weakest
sales since 1969, government reports out Thursday showed.
The Labor Department said new filings for jobless benefits clocked in at
481,000, a dip from the previous week but a still-elevated level that suggests
companies are resorting to big layoffs to cope with the economy's downturn.
Hartford Financial Services Group Inc., Circuit City Stores Inc., drug maker
GlaxoSmithKline PLC, chip maker Advanced Micro Devices Inc., auto parts maker
Dana Holding Corp., cable operators Comcast Corp. and Cox Communications Inc.
and Fidelity Investments are among the companies that recently have announced
layoffs.
To provide fresh relief, House Speaker Nancy Pelosi said Democrats, in a
lame-duck session later this month, would push to enact another round of
economic stimulus to provide more relief, which could include extending jobless
benefits.
A $168 billion package, including tax rebates for people and tax breaks for
businesses, was rolled out earlier this year. Short of a package of $100
billion or more, the House could press the Senate to pass a smaller $61 billion
measure that would bankroll public works projects to help generate new jobs and
would extend unemployment benefits.
Companies are begging for help, too. The leaders of General Motors, Ford and
Chrysler and the president of the United Auto Workers union came to Capitol
Hill to discuss billions of dollars more in financial help.
Reeling from layoffs and watching their wealth shrink as home values and nest
eggs have been clobbered, shoppers turned extra frugal last month and sent
sales at many retailers down sharply.
Michael P. Niemira, chief economist at the International Council of Shopping
Centers, summed up the situation as "awful."
According to the ICSC-Goldman Sachs index, sales fell 1 percent, the weakest
October performance since at least 1969 when the index began.
Target Corp. and Costco were among the many retailers reporting sales declines
last month. Even teens stayed away from malls. American Eagle Outfitters Inc.
and Abercrombie & Fitch Co. reported drops in sales. But Wal-Mart Stores Inc.,
the world's largest retailer, logged a sales gain as shoppers hunted for
bargains.
The Federal Reserve ratcheted down interest rates last week to 1 percent and
left the door open to further reductions in a bid to prevent a drawn out
recession in the United States.
The country's economic state has rapidly deteriorated in just a few months. The
economy contracted at a 0.3 percent pace in the July-September quarter,
signaling the onset of a likely recession. It was the worst showing since 2001
recession, and reflected a massive pullback by consumers.
As U.S. consumers watch jobs disappear, they'll probably retrench even further.
That's why analysts predict the economy is still shrinking in the current
October-December quarter and will contract further in the first quarter of next
year. All that more than fulfills a classic definition of a recession: two
straight quarters of contracting economic activity.