533 JOBS LOST IN NOVEMBER, the MOST IN 30 YEARS

CDIR Update No.91
Dec.5, 2006

533,000 jobs lost in November -- most in more than 30 years

By Maura Reynolds
8:20 AM PST, December 5, 2008


Washington -- The bottom fell out of the job market last month, with businesses laying off a staggering 533,000 workers -- many more than even gloomy economists predicted. It was the worst one-month decline in more than 30 years, the government reported today.

And the bad news didn't stop there. The Labor Department also revised upward its previous estimates of jobs losses in the last two months to 403,000 in September and 320,000 in October.

Altogether, the economy has bled more than 1.2 million jobs in the last three months alone, and nearly 2 million since the start of the year. Normally, the economy has to create 100,000 jobs a month, or about 1.2 million a year, just to keep pace with population growth.

"This was much worse than was expected and represents wholesale capitulation," said Peter Morici, an economist at the University of Maryland. "The threat of a widespread depression is now real and present."

The unemployment rate also rose in November, although not as dramatically -- from 6.5% to 6.7%. Economists say that's because the Labor Department doesn't count "discouraged" workers, only those who are actively applying for new jobs.

Jared Bernstein, a labor economist at the Economic Policy Institute, said that when discouraged workers are added into the rate, along with people involuntarily working part-time, the unemployment rate rises to 12.5%.

"At this point, almost 20 million people are unemployed or underemployed," said Bernstein, who has been named economic advisor to incoming Vice President Joe Biden. "That's almost 1 out of 8 people in the labor force."

The economy officially entered a recession a year ago, economists say, but the downturn deepened sharply when financial markets crashed in September. Bernstein noted that from January to August, job cuts averaged 82,000 a month. Since September, the average has been 419,000 jobs a month.

For most of this year, the losses have been concentrated in the hard-hit manufacturing and construction sectors, but last month no part of the economy was spared. Even stores who normally add holiday workers this time of year appeared to hire fewer than they did last year.

"History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while," said Joshua Shapiro, chief U.S. economist at MFR Inc., a New York-based forecasting firm. "We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline."

Joel Prakken, chairman of Macroeconomic Advisers, an economic research firm in St. Louis, Mo., said that recent data suggest that small and medium-sized business -- historically more reluctant to lay off trained employees -- have begun to bow to the economic pressure.

"The fact that you are now seeing job losses in small companies tells you that this has now spread well beyond the manufacturing and housing sectors," Prakken said.

Small businesses will often cut back workers' hours before laying them off, in part because it is harder for them to find and train new workers. That's one way that workers become "involuntary part-timers" -- their employer would rather reduce their hours from full-time to part-time than fire them outright.

"Small business owners are facing the grim reality that they're having to part with people they consider their extended family," said John Kabateck, executive director of the California chapter of the National Federation of Independent Business. "Unlike medium and large scale businesses, these are close-knit families. Telling an employee they have to leave is like evicting a close loved member of your family from your home. It's tough."

The only silver lining to the jobs report is that perhaps the steep job cuts will accelerate not only the downturn but the recovery, said Joel Naroff, president of Naroff Economic Associates in Holland, Pa.

Naroff said that the faster pace of technology and communications means that businesses appear to react more quickly now to bad economic news than they did in previous downturns. The first stage of adjustment is slowing production and reducing workers' hours; the second one is layoffs.

"We are heavily into the second stage of the adjustment process already," Naroff said. "In the past, the unemployment rate would rise well past a year or more of the end of a recession. Now we see businesses move immediately to cut out workers to reduce their costs so they can survive the recession."

"So, instead of a protracted period of moderate layoffs, it's possible we'll have a shorter period of very, very large layoffs," Naroff said.

In California, many small businesses are trying desperately to hang onto their close-knit group of employees, especially as the holidays creep closer.

Maria Sobrino, founder and CEO of Lulu's Dessert Corp. in Anaheim, said she's managed to avoid layoffs so far, but only by cutting many of her 60 employees' shifts from 10 to eight hours, opening four days a week instead of five, and eliminating an entire shift altogether.

Lulu's distributes baked goods to about 5,000 supermarkets in California, Nevada, Arizona and Texas, including Ralphs, Food4Less and Wal-Mart.

Sobrino said she may have to lay off workers in January if the holidays don't bring in enough business. "Sales are very soft right now," she said. "It'll depend on how the holidays go. Buyers are postponing their appointments until January. They don't want to see any new products until next year. I'm looking for a miracle to happen."

Spectrum Benefits Group, a Woodland Hills-based benefits consulting firm, works with about 200 small businesses, many of which have been contacting the agency for ways to cut back on benefits costs in order to avoid layoffs.

"The phone rings off the hook daily for this," said Vice President Marth Lugo-Aguayo. "Clients will call us saying they're going through layoffs. . . . we'll try to find them a different medical plan to save the company money so they can retain a couple more employees."

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