Blog
Labour pains for a slowing US economy
5th October 2008
The decision last week by the US Congress and Senate to pass a bill enacting the seven-hundred-billion dollar bail out for the bad debts of the US banking system may have provided short term relief to Wall Street traders and embattled financial institutions. But there is no denying that the labour market effects of the US slowdown are now coming sharply into focus.
Recessions in the world’s biggest economy are unusual as the title slide of this blog shows. But full-blown recession is not needed for aggregate employment to contract and for official measures of unemployment to head northwards.
More than 6 per cent of the labour force are now counted as out of work (up from 4.5 per cent at the start of 2007) and non-farm payroll employment is well past its turning point with a fall of over 750,000 since the beginning of 2008. The BBC reports that employers shed more than 150,000 jobs in September alone.
For AS-level Economists, this is a good example of a rise in cyclical unemployment where businesses feeling the squeeze of declining demand and higher costs opt to make cutbacks in their payroll and reduce overheads wherever they can. For millions of small to medium-size enterprises, overheads can become a crippling problem when demand dips and cash flow suffers.
The unemployment figures measure the headcount of people out of work but able, available and actively searching for paid jobs. No published figure can ever hope to capture the true scale of joblessness not least those who have given up the search for work or who operate outside the legal boundaries of an economic system.
Note too that businesses are cutting back on over-time and on average hours worked each week which will have a direct effect on the total monthly pay of those still in work. The real value of sales in retail stores looks very flat especially given the cuts in base interest rates and the fiscal handout from the Bush government.
A brief respite for the highly leverages and stressed out traders … but the lasting damage is to the real economy and the labour market is where the pain starts.
Labour market charts
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.