Record jump in US unemployment; no silver lining in sight
06 Feb 2009
The number of Americans filing first-time claims for unemployment benefits surged last week to a 26-year high, signalling a deepening deterioration in the labour market. The number of new claimants for unemployment benefits jumped to 626,000 in the week ended January 31, as businesses continued shedding workers to cope with the economic downturn.
The number represents a larger-than-expected increase over the 591,000 people who filed for benefits the week before, and it sets the stage for another jump in the January unemployment rate when it is released today by the labor department.
An ADP Employer Services report said companies in the US cut an estimated 522,000 jobs in January. As the firing spree continues, ArvinMeritor Inc, a maker of commercial-truck and auto parts, said yesterday it is firing more than 1500 employees, extending shutdowns and reducing work weeks at all plants as it tries to cut costs.
Other firms that have announced lay-offs include Macy's, which is cutting 7,000 jobs; Rockwell Collins Inc, an aircraft-parts producer, which will eliminate 600 positions, and PNC Financial Services Group Inc, which said it plans to cut 5,800 jobs by 2011.
The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.6 per cent in the week ended January 24. Forty-eight states and territories had a decrease in new claims for the week, while five reported an increase.
The number of people continuing to collect benefits also rose, to nearly 4.8 million, and is now at the highest point since recordkeeping began about 40 years ago.
"It's astonishing how quickly American businesses are laying people off," Roger Kubarych, chief US economist at Unicredit Global Research in New York, said in an interview with Bloomberg Radio. "They've learned that they have probably had too much staff for the kind of economy they foresee and they're laying people off left and right."
"The wave of layoffs is still rising, and the run of terrible payroll numbers will continue," Ian Shepherdson, chief US economist for the High Frequency Economics consulting firm, told a newspaper.
Weakness in the labour market did create one positive note for business: productivity jumped at a 3.2 per cent annual rate during the last three months of 2008, as the decline in the number of hours worked outstripped a decline in the output of goods and services. Rising productivity helps to control labour costs and keep inflation in check. The figure for the last quarter of the year was double of that for the prior three months.
Unit labour costs, a gauge of inflation and profit pressures closely watched by the Federal Reserve, climbed at a 1.8 per cent rate, well below the Wall Street estimates of three per cent. The number of hours worked dropped at an 8.4 per cent annual rate during the fourth quarter, the lowest since the first quarter of 1975.
The crush of new benefit applicants has created backlogs at state unemployment agencies, and other data out yesterday offered little prospect of relief. Major retailers reported soft January sales, as consumers continued to stay away amid uncertainty about the future. Though some stores beat expectations, it was often because sales simply had not declined as much as expected – a modest fall in sales is good news these days.
Orders to US factories also dropped for the sixth consecutive month in December, falling 3.9 per cent. It is the longest period of decline since the Census Bureau began publishing the statistic in 1992.
The US economy is "in for a tough several months," President Barack Obama had said in a 1 February TV interview. "It's going to take a number of months before we stop falling and then a little longer for us to get back on track."
With unemployment currently at 7.2 per cent and more than 10 million people out of work, creating jobs is a central aim of the economic stimulus plan being debated in Congress. The situation has become particularly acute in recent months, as job losses accelerated and major corporations announced layoffs numbering in the tens of thousands.
