By Don Miller
Associate Editor
Money Morning
The U.S. unemployment rate jumped to 8.5% in March, the highest level since 1983, threatening to throttle consumer spending for months and delay any economic recovery.
A Labor Department report on Friday showed the United States lost 663,000 jobs last month, matching the consensus forecasts of 79 economists surveyed by Bloomberg. January figures were revised to subtract an additional 86,000 workers while February’s drop of 651,000 was unchanged.
“The hope and expectation is that things will get a little less dire in the second quarter as various stimulus efforts kick in,” Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. (ADR:BCS) in New York, told Bloomberg News.
Employers have slashed about 5.1 million jobs since the recession began, creating the biggest labor slump since World War II. The job cuts have been spreading across nearly every sector – from manufacturers such as Johnson Controls Inc. (JCI) and Dana Holding Corp. (DAN) to service providers like International Business Machines Corp. (IBM) and even the U.S. Postal Service.
While an 8.5% unemployment rate is unmistakably grim, the Labor Department’s figure may be vastly understating the extent of the problem.
The official rate doesn’t include the 3.7 million-plus workers who have had hours cut or are filling part-time positions due to the poor labor market. Nor does it doesn’t include workers who have given up searching for seemingly non-existent jobs.
When those folks are added to the numbers, the unemployment rate rises to 15.6%, according to MSN Money. In March 2008, that number was 9.3%.
But even that doesn’t tell the whole story. According to Money Morning research conducted in January, if you include people that the government doesn’t even count – such as unemployed farm workers, self-employed, and workers in private homes – the unemployment rate could reach as high as 20%.
"The situation out there is very grim," Heather Boushey, the senior economist at the Center for American Progress, a left-leaning think tank told MSN Money. "We have seen the mounting of job losses faster than any point since World War II. I have never seen anything escalate this bad."
Another way to look at the figures is that more than 13 million people are currently unemployed. And as most unemployed people know all too well: For every job out there, more than four people are competing for it, Boushey said.
If General Motors Corp. (GM) should be forced into bankruptcy, the slump may intensify when as many as 1 million additional auto-industry jobs are lost. In that case, official unemployment would climb to 11%, Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities (DB), in New York, told Bloomberg.
The dire state of the auto industry is already starting to rip through the parts-supply business. Johnson Controls, a maker of car interiors and batteries, announced in February it would shut down 10 factories and slash about 4,000 jobs. Dana, the truck-axle manufacturer that exited bankruptcy in 2008, said it would reduce payrolls by an additional 5,800 this year, on top of 800 previously announced.
“We are taking the difficult actions necessary to survive,” Dana’s Chief Executive Officer John Devine said in a March 16 statement.
The new layoffs bring the total number of job cuts to over 2 million already this year.
If there is a bright spot in the news, it is that firms may have overshot the mark and are cutting deeper and faster than necessary.
“The philosophy seems to be cut massively now and ask questions about whether too much has been done later,” Joel L. Naroff President and Chief Economist of Naroff Economic Advisors, Inc., wrote in a note to investors.
“There is not likely to be the second and third rounds of layoffs that were frequent in previous extended slowdowns,” he said, noting that unemployment is a lagging indicator and will rise even when the economy’s close to the bottom of a downturn.
That means it is possible that job cuts will slow sharply from late spring into summer, Naroff said.
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