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U.S. March Unemployment Probably Rose to 25-Year High (Update1)
By Bob Willis
April 3 (Bloomberg) -- The U.S. jobless rate rose in March to the highest level in 25 years and payrolls plunged, exposing the economy to the risk of renewed declines in spending that would scuttle a recovery, economists said before a report today.
Unemployment jumped to 8.5 percent from 8.1 percent in February, according to the median of 79 estimates in a Bloomberg News survey. The figures may also show employers cut 660,000 workers from staff, bringing total losses since the recession began to 5 million, the biggest slump in the postwar era.
Evaporating jobs and declining pay mean President Barack Obama’s pledge to create or save 3.5 million jobs through tax cuts and government spending may fall short of what’s needed to revive the world’s largest economy. Federal Reserve Chairman Ben S. Bernanke has conceded joblessness could top 10 percent under a worst-case scenario.
“The unemployment rate is not done rising and the gain in March won’t be the last,” said Stuart Hoffman, chief U.S. economist at PNC Financial Services Group Inc. in Pittsburgh. “With jobs still declining and incomes being squeezed, consumer spending still looks quite weak.”
The job cuts have been spreading from manufacturers like Johnson Controls Inc. and Dana Holding Corp., to service providers like International Business Machines Corp. and even the U.S. Postal Service.
‘Severe Job Cuts’
The last time the unemployment rate was at 8.5 percent was in November 1983, when the economy was recovering from the 1981- 82 recession that pushed the rate to almost 11 percent. Then Fed Chairman Paul Volcker boosted interest rates to quell soaring inflation following the 1970s fuel crisis.
Today’s employment report will probably show “severe job cuts” in March, White House spokesman Robert Gibbs said today. Gibbs, speaking aboard Air Force One, said he had not seen the figures.
Labor’s report is due at 8:30 a.m. in Washington. Economists’ payroll estimates ranged from declines of 525,000 to 750,000. Forecasts for the jobless rate spanned from 8.2 percent to 8.7 percent.
A report at 10 a.m. may show service industries shrank last month at a slower pace. The Tempe, Arizona-based Institute for Supply Management’s non-manufacturing index, which covers almost 90 percent of the economy, probably rose to 42 from 41.6 in February, according to economists surveyed. A reading of 50 is the breakeven point between contraction and growth.
Auto Slump
IBM, the world’s biggest computer-services provider, cut about 5,000 jobs last week, according to a person familiar with the matter. The reduction was in addition to the more than 4,000 jobs already eliminated since January.
The manufacturing slump that began more than a year ago may intensify should General Motors Corp. be forced into bankruptcy, economists said. As many as 1 million additional auto-industry jobs may be lost and the unemployment rate would climb to 11 percent, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.
The auto slump has already rippled through the industry. Johnson Controls, a maker of car interiors and batteries, said last month it will shut 10 factories and cut about 4,000 jobs. Dana, the truck-axle manufacturer that exited bankruptcy in 2008, said it will boost its payroll reduction to 5,800 this year, 800 more than previously announced.
‘No Assurances’
“We believe we are taking the difficult actions necessary to survive,” Dana Chief Executive Officer John Devine said in a March 16 statement. “There can be no assurances, however, if the global economy deteriorates substantially beyond our planning assumptions.”
Since taking office Jan. 20, Obama has enacted a series of measures aimed at stemming the recession. He signed into law a $787 billion stimulus plan on Feb. 17 that included spending on infrastructure projects to boost hiring.
The Treasury Department is also moving to repair the damaged financial system and lower record foreclosures, while the Fed is flooding markets with cash to boost borrowing and spending.
Bernanke last month said it was “certainly well within the realm of possibility” that unemployment nationwide could rise above 10 percent “for a period.” That’s the assumption being used in a worst-case scenario in tests to determine the health of the banking system, he said.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net Last Updated: April 3, 2009 07:17 EDT
By Bob Willis
April 3 (Bloomberg) -- The U.S. jobless rate rose in March to the highest level in 25 years and payrolls plunged, exposing the economy to the risk of renewed declines in spending that would scuttle a recovery, economists said before a report today.
Unemployment jumped to 8.5 percent from 8.1 percent in February, according to the median of 79 estimates in a Bloomberg News survey. The figures may also show employers cut 660,000 workers from staff, bringing total losses since the recession began to 5 million, the biggest slump in the postwar era.
Evaporating jobs and declining pay mean President Barack Obama’s pledge to create or save 3.5 million jobs through tax cuts and government spending may fall short of what’s needed to revive the world’s largest economy. Federal Reserve Chairman Ben S. Bernanke has conceded joblessness could top 10 percent under a worst-case scenario.
“The unemployment rate is not done rising and the gain in March won’t be the last,” said Stuart Hoffman, chief U.S. economist at PNC Financial Services Group Inc. in Pittsburgh. “With jobs still declining and incomes being squeezed, consumer spending still looks quite weak.”
The job cuts have been spreading from manufacturers like Johnson Controls Inc. and Dana Holding Corp., to service providers like International Business Machines Corp. and even the U.S. Postal Service.
‘Severe Job Cuts’
The last time the unemployment rate was at 8.5 percent was in November 1983, when the economy was recovering from the 1981- 82 recession that pushed the rate to almost 11 percent. Then Fed Chairman Paul Volcker boosted interest rates to quell soaring inflation following the 1970s fuel crisis.
Today’s employment report will probably show “severe job cuts” in March, White House spokesman Robert Gibbs said today. Gibbs, speaking aboard Air Force One, said he had not seen the figures.
Labor’s report is due at 8:30 a.m. in Washington. Economists’ payroll estimates ranged from declines of 525,000 to 750,000. Forecasts for the jobless rate spanned from 8.2 percent to 8.7 percent.
A report at 10 a.m. may show service industries shrank last month at a slower pace. The Tempe, Arizona-based Institute for Supply Management’s non-manufacturing index, which covers almost 90 percent of the economy, probably rose to 42 from 41.6 in February, according to economists surveyed. A reading of 50 is the breakeven point between contraction and growth.
Auto Slump
IBM, the world’s biggest computer-services provider, cut about 5,000 jobs last week, according to a person familiar with the matter. The reduction was in addition to the more than 4,000 jobs already eliminated since January.
The manufacturing slump that began more than a year ago may intensify should General Motors Corp. be forced into bankruptcy, economists said. As many as 1 million additional auto-industry jobs may be lost and the unemployment rate would climb to 11 percent, said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.
The auto slump has already rippled through the industry. Johnson Controls, a maker of car interiors and batteries, said last month it will shut 10 factories and cut about 4,000 jobs. Dana, the truck-axle manufacturer that exited bankruptcy in 2008, said it will boost its payroll reduction to 5,800 this year, 800 more than previously announced.
‘No Assurances’
“We believe we are taking the difficult actions necessary to survive,” Dana Chief Executive Officer John Devine said in a March 16 statement. “There can be no assurances, however, if the global economy deteriorates substantially beyond our planning assumptions.”
Since taking office Jan. 20, Obama has enacted a series of measures aimed at stemming the recession. He signed into law a $787 billion stimulus plan on Feb. 17 that included spending on infrastructure projects to boost hiring.
The Treasury Department is also moving to repair the damaged financial system and lower record foreclosures, while the Fed is flooding markets with cash to boost borrowing and spending.
Bernanke last month said it was “certainly well within the realm of possibility” that unemployment nationwide could rise above 10 percent “for a period.” That’s the assumption being used in a worst-case scenario in tests to determine the health of the banking system, he said.
Bloomberg Survey
================================================================
Nonfarm Unemploy Manu ISM Non-
Payrolls Rate Payrolls Manu
,000’s % ,000’s Index
================================================================
Date of Release 04/03 04/03 04/03 04/03
Observation Period March March March March
----------------------------------------------------------------
Median -660 8.5% -162 42.0
Average -663 8.5% -166 42.0
High Forecast -525 8.7% -80 45.0
Low Forecast -750 8.2% -225 38.0
Number of Participants 80 79 19 67
Previous -651 8.1% -168 41.6
----------------------------------------------------------------
4CAST Ltd. -635 8.4% --- 43.0
Action Economics -640 8.5% -160 41.5
AIG Investments -551 8.4% --- 45.0
Aletti Gestielle SGR -660 8.5% -170 ---
Ameriprise Financial Inc -665 8.5% -185 42.5
Argus Research Corp. -650 8.3% -175 43.0
Bancolombia SA -680 8.3% --- ---
Bank of Tokyo- Mitsubishi -731 8.5% --- 38.2
Bantleon Bank AG -700 8.5% --- 41.9
Barclays Capital -675 8.6% --- 41.6
BBVA -658 8.4% -152 41.3
BMO Capital Markets -640 8.5% --- 42.0
BNP Paribas -700 8.5% --- 42.0
Briefing.com -640 8.5% --- 43.0
Calyon -700 8.5% --- ---
Castlestone Management LT -700 8.5% --- ---
CIBC World Markets -650 8.6% --- ---
Citi -650 8.5% --- 41.0
ClearView Economics -575 8.4% -150 42.5
Commerzbank AG -670 8.6% --- 42.5
Credit Suisse -700 8.6% --- 42.0
Daiwa Securities America -600 8.5% --- 42.0
Danske Bank -630 8.4% --- 42.5
DekaBank -620 8.4% --- 42.5
Desjardins Group -600 8.4% --- 42.5
Deutsche Bank Securities -750 8.5% --- 42.0
Deutsche Postbank AG -650 8.5% --- 42.0
DZ Bank -700 8.6% --- 42.3
First Trust Advisors -688 8.3% -219 42.0
Fortis -670 8.5% --- 42.0
FTN Financial -600 8.3% --- 40.0
Goldman, Sachs & Co. -700 8.6% --- 41.5
Helaba -700 8.4% --- 42.0
Herrmann Forecasting -709 8.6% -162 43.0
High Frequency Economics -750 8.4% --- 45.0
HSBC Markets -525 8.3% --- 44.0
IDEAglobal -610 8.5% -170 42.0
IHS Global Insight -750 8.6% --- 41.0
Informa Global Markets -600 8.4% -80 41.0
ING Financial Markets -750 8.6% -180 42.3
Insight Economics -650 8.5% --- 42.0
Intesa-SanPaulo -720 8.5% --- 41.5
J.P. Morgan Chase -710 8.4% --- 43.0
Janney Montgomery Scott L -680 8.4% --- 42.3
Landesbank Berlin -600 8.5% --- 38.0
Landesbank BW -640 8.5% --- 43.0
Lloyds TSB -700 8.3% -225 42.0
Maria Fiorini Ramirez Inc -675 8.3% --- 41.5
Merrill Lynch -750 8.7% --- 40.5
MF Global -710 --- --- ---
Mizuho Securities -675 8.4% --- ---
Moody’s Economy.com -717 8.5% -200 42.0
Morgan Keegan & Co. -634 8.4% --- ---
Morgan Stanley & Co. -700 8.5% --- ---
National Bank Financial -650 8.5% --- 43.0
Natixis -660 8.5% --- 43.0
Newedge -645 8.3% --- 42.0
Nomura Securities Intl. -725 8.4% -125 42.0
Nord/LB -650 8.4% -160 42.5
PNC Bank -630 8.5% -150 41.0
Raymond James -630 8.5% --- 42.2
RBC Capital Markets -660 8.4% --- ---
RBS Securities Inc. -550 8.2% --- 42.0
Ried, Thunberg & Co. -700 8.5% --- 41.0
Schneider Foreign Exchang -690 8.7% --- ---
Scotia Capital -700 8.5% --- 42.0
Societe Generale -625 8.5% --- ---
Standard Chartered -700 8.5% --- ---
Stone & McCarthy Research -660 8.5% -170 43.5
TD Securities -625 8.4% --- 42.0
Thomson Reuters/IFR -650 8.5% --- 43.0
Tullett Prebon -650 8.5% --- 42.0
UBS Securities LLC -600 8.4% --- 42.0
Unicredit MIB -675 8.3% --- 43.0
University of Maryland -610 8.4% -160 42.5
Wachovia Corp. -670 8.5% --- 41.2
Wells Fargo & Co. -650 8.5% -160 41.5
WestLB AG -650 8.4% --- 41.8
Westpac Banking Co. -630 8.5% --- 39.0
Wrightson Associates -700 8.5% --- 41.0
================================================================
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net Last Updated: April 3, 2009 07:17 EDT