U.S. Economy: Unemployment Hits 25-Year High, Services Contract

By Bob Willis and Shobhana Chandra

Highlights

April 3 (Bloomberg) The U.S. unemployment rate jumped to 8.5% in March to the highest level since 1983 and service industries shrank at a faster than anticipated pace, indicating the economy remains trapped in what’s likely to be the longest recession since the 1930s.

Additional points of interest include:

• Lost Jobs: The economy lost 663,000 jobs in March, bringing losses since the slump began to about 5.1 million, the worst in the postwar era, Labor Department figures showed in Washington.
• Revisions: subtracted 86,000 workers from January payrolls while February’s drop of 651,000 was not revised.
• Average Number of Hours Worked: fell to 33.2 per week, down six minutes from February and the fewest since records began in 1964.
• Nariman Behravest: Chief economist at IHS Global Insight in Lexington,“We could continue to see a few more months of really bad employment numbers before it starts to ease,”. Behravesh projected the jobless rate will peak between 10 percent and 10.5 percent in early 2010. “We aren’t there yet, but we are getting closer to a bottom,” he said.
  
• Service industries: which include banks, insurance companies, restaurants and retailers, cut 358,000 workers after a 366,000 decline in February. Financial firms cut payrolls by 43,000, after a 44,000 decrease the prior month. Retail payrolls decreased by 47,800 after a 50,800 drop.
• Federal Reserve Vice Chairman Donald Kohn: said both the Obama administration and central bank must remain “flexible and open” to further measures because the economy and financial markets aren’t “out of the woods yet.” The labor-market rout will make it tougher for President Barack Obama to follow through on his pledge to save or create 3.5 million jobs.

COMMENTS

The economy is experiencing the flip side of prosperity. High rising unemployment is adding another layer of downward pricing pressure on everything. Yes, deflation is still alive and we need to realize unless more people go back to work and we start seeing a rise in real wages at the middle and working class level, problems will continue to loom.

Finally, buyers beware of false market starts in the housing and stock market. We are to early in this market cycle to see a turn around in this bear market. 2009 is the year we will see all the toxic asset securities and life support blue chip companies go to the public. Everyone want to try and unload their bad debt and equity. Yep, fortunes are made at the bottom of markets but what you never hear is fortunes are also lost by those unlucky folks trying to pick a bottom.

James Monachino