By Don Miller
The number of Americans filing new claims for jobless benefits rocketed to a 26-year high last week, surpassing already gloomy forecasts, as the U.S. economy sinks deeper into recession.
Initial applications for jobless benefits climbed by 58,000 to 573,000 in the week ended Dec. 6, upwardly revised from 515,000 the previous week, the U.S. Labor Department reported yesterday (Thursday). The figure was the highest since 1982, and far exceeded the median projection of 525,000 put forth by 39 economists surveyed by Bloomberg News.
The increase was due, in part, to a bounce from the week before, which was shorter because it included the Thanksgiving holiday. Government offices were open only four days that week.
Nevertheless, the four-week average, which smooths out fluctuations, stood at 540,500. That’s the biggest number of jobless claims filed since December 1982, when the economy was also mired in a deep recession. By comparison, there were 337,000 initial claims last year.
Workers claiming continuing jobless benefits also blew through economists’ projections, jumping by 338,000 to 4.4 million, the Labor Department said. Economists had expected 4.1 million. Continuing claims lag initial claims by one week.
"Stepping back from the short-term noise … it is very clear that the underlying trend in claims is still rocketing, as companies throw in the towel and prepare for a long, deep recession," Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a research note to clients, MSNBC News reported.
Jobless claims are considered by economists to be a snapshot of the health of the labor markets and broader economy.
The U.S. economy has shed 1.9 million jobs so far this year, with payrolls having now dropped for 11 straight months. U.S. companies slashed 533,000 jobs in November, and the unemployment rate grew to 6.7% , the highest since 1974, the government said last week.
“The labor market is facing its worst crisis since 1982, and it is certainly not over yet,” said Harm Banholtz, a U.S. economist at UniCredit Markets and Investment Banking in New York, told Bloomberg News. “One of the most important tasks of the newly elected government is, therefore, to help distressed homeowners and to stimulate the labor market.”
More companies added to the malaise yesterday as additional layoffs were announced. New Britain, Conn.-based toolmaker Stanley Works (SWK) plans to lay off 2,000 workers and close three manufacturing plants. Illinois-based foodmaker Sara Lee Corp. (SLE), said it had outsourced 700 jobs overseas, and Office Depot Inc. (ODP) is adding 2,200 cuts of its own over the next three months. The office-products firm is closing 112 stores – about 9% of those in the North American market – and six of its 33 distribution centers.
Looming over the jobless picture is the uncertainty surrounding the $14 billion automakers bailout bill, currently being mulled in the Senate. But even with a bailout, one – or even all three – of America’s “Big Three” carmakers may fail.
If a bailout doesn’t materialize – or fails to have the desired impact – the results will be catastrophic, according to the Center for Automotive Research. The Ann Arbor, Mich.- based nonprofit told The Associated Press that if Detroit’s Big Three stopped making cars today and returned to 50% production in 2010 and 2011, it would still wipe out nearly 2.5 million jobs next year.
Job losses of that magnitude would have a profoundly negative impact on the U.S. economy – with horrid ripple effects worldwide – because of the plunge in consumer confidence the resultant job losses and loss of confidence that would result. Fully 70% of all domestic economic activity is powered by consumer spending. And with the cutbacks some doomsayers foresee, even exporters in developing markets as far away as China and India would feel the squeeze.
Here at home, the mere threat of job losses is being felt on Main Street. According to an Associated Press-GfK poll released Wednesday, 53% of shoppers say they expect to spend less on holiday gifts than they did last year, while 40% will spend the same.
In other words, more than 90% of American shoppers are resisting the urge to splurge and spend more this year than last on friends and family during the holiday period, a time retailers depend on for as much as 40% of their revenue for the year. That spells big trouble for retailers nationwide, with the possible exception of Wal-Mart Stores Inc. (WMT) , and other large discounters.
Also buttressing the curtailed spending argument is a new poll that says just 20% of shoppers plan to use credit cards for holiday purchases. That’s down a whopping 33% from 2004. And two-thirds of the consumer surveyed said they would pay off the full balance owed when the bills come due in January, the poll found.
News and Related Story Links:
- Money Morning News:
Auto Bailout Passes House, Faces Hostile Senate.
- Bloomberg News:
U.S. Economy: Trade Falters, Claims at 26-Year High.
New unemployment claims highest in 26 years.