The Weak Labor Market Continues...

The economy lost 299,000 jobs in the third quarter, with 159,000 of those losses occurring in September. Hurricanes Gustav and Ike inflated the decline, but there is little reason to believe that this was just a temporary setback. Labor market conditions are deteriorating and will continue to do so. Until recently, we found some comfort in the fact that outside of construction and manufacturing, employment was still rising. That is no longer true.

To make matters worse, government added 79,000 jobs in the third quarter which means that the private sector lost 378,000 jobs in the last three months and almost one million since the start of the year. The crises that hit Wall Street in September started hitting Main Street back in January, a clear case of the chickens coming home to roost.

In the past two (relatively mild) recessions, employment fell about 1.5 percent from peak to bottom. In the more severe recessions of 1980 – 1982 and 1974 – 1975, the employment declines were 2.5 percent. So far, we have seen a decline of only 0.6 percent which means the economy could lose anywhere between 1.3 million and 2.7 million more jobs. Put bluntly, the worst is still to come.

Not only are more people out of work, but the depth of their unemployment is greater. Two million workers have been unemployed for more than six months, a 60 percent increase since last September. The portion of the labor force out of work for six months or more is at its highest level in 25 years.

The rise in long-term employment is also tied to the housing slump. If you cannot sell your house, you cannot move to another part of the country where employment prospects might be brighter.