LEX The US economy is slipping towards recession. Friday’s employment report for August showed that 84,000 jobs were lost in the past month. That was largely as expected; the absolute number of employed has been shrinking all year. What surprised economists, and sent markets downwards to cap a 6 per cent fall for the S&P 500 this week, was a big jump in the unemployment rate. A combination of revisions to the number of jobs lost in June and July, with a rise in those actively looking for work, pushed the jobless rate from 5.7 per cent to 6.1 per cent, the highest in five years.
Not since 1983 has the jobs market deteriorated so rapidly. Only in April the jobless rate was 5 per cent. Furthermore, the nature of the job losses points to further declines ahead. Most categories of employment, except those insulated from the economic cycle such as government and healthcare work, saw losses. A big drop in the number of temporary workers, and a fall in overtime hours worked, suggest that companies are cutting back wherever they can.
Meanwhile, the influx of adults aged 25 or over into the labour market indicates how highly stretched household finances are. A report from the Mortgage Bankers Association, also released on Friday, reinforced that point. The proportion of residential mortgages where one or more payments are behind schedule reached 6.4 per cent in the second quarter, the highest level in the survey’s 29-year history.
The Federal Reserve has never raised rates while unemployment is growing, so it looks likely to stay on hold at least into 2009. The headline rate of consumer price inflation remains relatively high but, with no pressure from wage growth, it should start to ebb as commodity prices fall. That may be a boon for markets but it offers precious little comfort for those out of work and a house.
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