Recession to deepen as US jobs crisis hits new high

THE scale of the economic tsunami yet to hit Britain was laid bare yesterday, as statistics revealed the United States is losing 25,000 jobs every day.

The world's biggest economy shed 651,000 jobs in February to reach its highest level of unemployment in 25 years.

In all, 4.4 million Americans have been made redundant since the recession began in December 2007 – that is about 1.4 million more people than Scotland's entire working age population.

Unemployment in the US rose from 7.6 per cent in January to 8.1 per cent last month, according to figures released yesterday by the Bureau of Labour Statistics.

Analysts and politicians warned that the UK was likely to follow suit.

Jonathan Davis, a financial planner at Armstrong Davis, said it took Britain 12 to 18 months to follow US economic trends.

"The UK has an economy that is 70 per cent based on consumer spending, similar to the US," he said. "The difference is we have more debt per capita than American households, which means that we will be in an even worse state.

"Unemployment will definitely be above three million here soon, and I think we will also see the return of £10,000 houses in some of our less desirable areas."

He pointed to beleaguered Detroit, the US car-making capital, where median house prices had fallen to as low as $7,500 (£5,300).

Vince Cable, the Liberal Democrat's Treasury spokesman, told The Scotsman the latest grim news on the US economy was a "a warning of what's coming here down the track".

He said: "We sincerely hope that the action taken by the government and the Bank of England will help head off a really serious slump, but the simple truth is that the banking crisis is much worse in Britain than in the US because three out of five of the biggest banks in the world are here."

Barack Obama, the US president, described yesterday's jobless figures as "astounding".

He said he hoped his $787 billion (£560 billion) stimulus package would help stem the tide of unemployment but admitted: "This recovery plan won't turn our economy around or solve every problem. All of this takes time and it will take patience."

Nigel Gault, an economist at IHS Global Insight, said there was "no light at the end of the tunnel". He said: "Job losses are everywhere and there's no hope for a turnaround any time soon."

Ellen Zetner, a senior economist at the Bank of Tokyo- Mitsubishi UFJ in New York, warned: "There is not a single sign that points to a bottom yet. It is the worst recession in the post-war era."

Mark Zandi, chief economist at Moody's in New York, said: "There's nothing redeeming about this picture."

There are now 12.5 million people who are officially unemployed in the US, and the actual number is likely to be much higher.

Yesterday's figures also showed more jobs were lost in December and January than previously thought.

The decline in December was the biggest since October 1949.

The US labour department's unemployment rate was worse than the expected 7.9 per cent, and the job losses hit every sector, except government, health and education.

The services industry was the worst hit, shedding 375,000 jobs in February – 180,000 of which were in professional and business services employment.

Some 168,000 jobs were lost in manufacturing, bringing its total losses during this recession to 1.3 million. With the massive crash in property values, construction was also hit badly, losing 104,000 jobs last month and 904,000 since December 2007.

Even temporary agencies have lost 686,000 jobs since the start of the recession.

There were some small areas of growth. Some 9,000 government jobs were created and there was an increase in education and health services employment of 26,000.

But gloomy US economists predict the job market may not pick up until 2013.

In the UK, opposition politicians, who are usually careful not to "talk down" the British economy, were pessimistic.

Stewart Hosie, the SNP's Treasury spokesman, said: "On both sides of the Atlantic, unemployment has become a grim measure of this recession.

"Unfortunately, while President Obama has signed and sealed a $787 billion stimulus package, Gordon Brown is set on cutting public spending."

He pointed out that Mr Obama was directing extra resources to individual states and said: "The state of Maryland, for example – which has a similar population to Scotland – will receive some £2.6 billion extra funding, supporting 66,000 jobs over the next two years.

"Contrast this with the UK, where Gordon Brown is proposing to cut Scottish public spending from 2010 by £500 million a year, in the teeth of a recession. Gordon Brown's plan would add to the dole queue by some 8,700 Scottish jobs alone."

However, Gordon Brown, the Prime Minister, yesterday said international action was essential to tackling the crisis.

He said: "Whilst we must retain the benefits that open financial markets bring to the world economy, international financial market regulation must be toughened."

He said proposals he would put to the G20 meeting in London next month would be the outcome of conversations with "our friends and partners" in the US, Europe and the rest of the world.

On the other side of the Atlantic, the US economy is also being hampered by an increase in the number of workers forced to go for part-time jobs. Those working part-time for "economic reasons" or who have given up looking for work surged to 14.8 per cent in February, the highest since at least 1994.

The Obama administration has set aside immediate concerns about a budget gap and pushed through its huge stimulus plan, aimed at creating or saving 3.5 million jobs.

But despite a modest growth in wages, analysts say anyone lucky enough to take a new job in the current climate would probably face a 10 to 20 per cent reduction in their salary.

Adding to the US Treasury's concerns will be the $3 trillion held in US currency by countries such as China and Japan.

Having been hit by the recession, they may have to cash in their US dollars to shore up their domestic economies as the global economic downturn deepens.

This would send the dollar plunging in value and American inflation soaring.


IN NUMBERS

• 651,000: The number of jobs lost in February 2009 in America.

• 4.4 million: Jobs lost since the United States' recession began in December 2007.

• 12.5 million: Officially unemployed in America.

• 8.1 per cent: Percentage of the US workforce without employment.

• 7.9 per cent: Jobless forecast for February.

• 25,000: The number of jobs lost daily in America.

• 375,000: White-collar job losses in the services sector.

• 168,000: Job losses in manufacturing.

• 14.8 per cent: Percentage of labour market forced to work part-time.

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Analysis: America's deep pessimism needs to be proved as irrational as its former exuberance if it is to recover soon

Bill Jamieson

WE ARE now in the Dante's Inferno of economics. After the "irrational exuberance" that Alan Greenspan, the former Federal Reserve chairman, warned of in 1996, comes all too rational utter pessimism.

America's spiralling unemployment figures confirm the worst fears that the country is locked in a deadly downward spiral. Every day seems to bring fresh horrors – plunging house prices, falling sales, deepening crisis for the car industry – and on Wall Street share prices continue to hurtle downwards in a slide that is ominously retracing the crash that led to the Great Depression.

A singular feature of this downward spiral is the way in which it has flung aside all attempts by the government to halt its progress.

The Great Crash of 2009 has proceeded past a continuous, unrelenting breach of previous forecasts and hopes for some signs of moderation – any moderation will now do.

On the stock market, the mood is black. After another volatile session yesterday, the Dow Jones Industrial Average finished near 12-year lows.

The growing apprehension in markets is that the slump in confidence has become self-feeding; that companies that looked "safe" just a few months ago have been consumed in the flames and that this has all the potential to be a shattering Depression that will permanently change America and the world for a generation.

The economies of America and Britain have long moved in tandem. This is not only because of historically strong trade links between the two – the US accounts for some 15 per cent to 20 per cent of UK exports – but also because America has also accounted for the lion's share of inward direct investment and financial investment.

When America goes down, we will almost certainly go down with it, after a time lag.

Caught in the vortex of the new hopelessness are companies such as General Electric. Its shares have plunged 45 per cent in the past month. Investors have become increasingly worried that losses at its financing arm could put a crippling dent in the conglomerate's capital base.

The latest US Bureau of Labour figures show the economy shed jobs for the 14th consecutive month, pushing the country's unemployment rate to 8.1 per cent – the highest in more than 25 years. The key measure of employment, non-farm payrolls, shrank by 651,000 in February. This brings the total losses from the start of the recession in December 2007 to 4.4 million – with 2.6 million of that coming in the past four months.

Jobs are being lost in nearly all major industries, the exceptions being marginal gains in both government and education and health.

Manufacturing lost 168,000 jobs last month, bringing its total to 1.3 million.

The construction industry has had similar losses, with employment falling by 104,000 in February and 904,000 throughout this recession.

The services sector is even worse hit, losing a total of 375,000 jobs this month – the bulk of which was an 180,000 drop in professional and business services employment.

Even greater losses are expected in the short term – the Federal Reserve's own projections show the unemployment rate is set to peak in this recession at just below 9 per cent for 2009. That is now looking optimistic.

The hope is that the huge fiscal and monetary measures will kick in during the summer and autumn.

America needs the deep pessimism now to prove as irrational as the irrational exuberance of 1996 when Alan Greenspan gave his warning. But in the process truly colossal damage will have been done.