Economic Notes: Parachute Deployed
5/08/2009
Economic contractions and skydiving have at least one thing in common: until the parachute opens, the outcome cannot possibly be good.
The opening of the ‘chute doesn’t mean that the descent is over. But it makes it far more likely that the skydiver will be able to stand up afterward.
The Bureau of Labor Statistics report on U.S. labor market conditions in April suggests that the economy’s parachute has deployed. Although employment was down for the 16th consecutive month, it fell by the smallest number (-539,000) since October – well below the first quarter’s average monthly loss of 707,000.
Since the recession began, employment has declined by 4.2 percent (-5.7 million jobs). Almost half (48.8 percent) of that loss was in manufacturing and construction, which accounted for only 16 percent of all jobs at the outset of the downturn. Employment in the private service-providing sector is “only” down 3.4 percent.
The unemployment rate, the number of those actively seeking work as a proportion of the labor force, rose to 8.9 percent, higher than in any month since September 1983. The number of unemployed (13.7 million) has jumped by 82 percent since the recession began. The average jobseeker is out of work for 21+ weeks (up from 17 weeks a year ago).
These numbers can be expected to worsen – albeit at a slower rate – for months to come according to the Report on BusinessÒ indexes compiled by the Institute of Supply Management on the manufacturing and nonmanufacturing sectors.
The Census Bureau reported that manufacturers’ new orders and shipments declined in March. With the exception of January, this has been the case since last summer. Nevertheless, producers have made considerable progress in cutting inventories. This positions them to increase activity (and employment) quickly when demand picks up later this year.
The uptick in personal consumption expenditures in the first quarter of 2009 (c.f., “Out of Sight”) was welcome news, but other data from the Bureau of Economic Analysis indicated that the gains were concentrated in January, with consumer spending slowing in February and March.
The Federal Reserve’s most recent numbers on consumer credit confirm that the plastic returned to the pocket in February. Consumer credit fell at a 3.5 percent annual rate due to a 9.7 percent drop in revolving (e.g., credit card) balances.
Consumer spending is the lion’s share of the economy. So long as workers are concerned about their jobs, they will remain cautious shoppers. That is unlikely to change until the parachute reduces monthly job losses to below 300,000.