By Jason Simpkins
Job losses spiked in October according to two key employment reports released yesterday (Wednesday). The rate of unemployment has risen steadily over the past year but job losses expanded in both size and scope in October and will likely continue to accelerate well into 2009, further exacerbating an already potent economic downturn.
Private U.S. companies cut an estimated 157,000 jobs in October, the largest decline in nearly six years, ADP Employer Services said yesterday (Wednesday). Separately, outplacement firm Challenger, Gray & Christmas Inc. said job cut announcements by U.S. employers soared to 112,884 in October – a 79% increase from last year.
"We are starting to see more recession-like declines in employment," said Sal Guatieri, a senior economist at BMO Capital Markets, told Bloomberg News. "The loss of jobs means consumers will continue to retrench in the next couple of quarters."
The ADP National Employment Report used ADP payroll data that averaged 500,000 payrolls for 24 million U.S. employees. It showed that private sector jobs fell by 157,000 in October – the largest decline in close to seven years. Job losses have been mounting since January, and ADP doesn't expect that trend to reverse course anytime soon.
"It would not surprise me at all to see many more declines in employment in the near-future," Joel Prakken, Chairman of Macroeconomic Advisors, said in a conference call with reporters.
Prakken added that it is "highly likely" unemployment numbers will be in excess of 200,000 job losses per month over the next several months.
Challenger, Gray & Christmas offered up an equally bleak assessment. The company said job cut announcements by employers rose to 112,884 in October, the largest number since January 2004.
A total of 875,974 planned job cuts have been reported this year. That's 14% higher than the total number of planned job cuts announced throughout all of 2007 and the largest 10-month total since 2003, CNNMoney reported.
"Year-end job cuts are typically higher than at other times of the year, but the fact that October was significantly higher than recent years suggests that companies not only have been hit hard by this downturn, but they do not see a rebound any time in the near future," said John Challenger, chief executive officer of Challenger, Gray & Christmas.
"Even if the economy begins to rebound in the spring or summer, it could be months before we start to see net gains in employment and a decline in the unemployment rate," Challenger added.
Financial services and automotive companies have led the way in payroll reduction. Their combined 239,760 layoffs represent 27% of all layoffs this year, according to CNN. However, those losses are beginning to bleed over into other industries.
The Labor Department is expected to report 200,000 jobs were lost in October, bringing the total this year to nearly 1 million. The unemployment rate is also expected to rise to 6.3% from 6.1%. Economists forecast that the jobless rate will rise to more than 8% before the job market recovers.
A new analysis by Goldman Sachs Group Inc. (GS) said the economic downturn, and the job losses inherent to it, are only just beginning. Goldman sees unemployment climbing to 8% in 2009.
Ed McKelvey, economist and co-author of the Goldman study, told TIME magazine that over the next year, "lagging" sectors of the economy – such as construction, manufacturing, financial services and retail – will absorb most of the coming losses.
"As the economy slides into a deeper recession, it appears we are closer to the beginning of the labor market downturn than the end," McKelvey said.
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