Vanishing jobs, stressed consumers feed downturn

November 7, 2008 4:30:06 PM PST
President-elect Barack Obama also referred to the bleak jobs report that was released Friday.The labor department says 240,000 people lost their jobs in October. That pushed the unemployment rate up to 6.5 percent, the highest it's been in 14 years.

Buyouts were being offered to 2,600 employees at Chrysler's plant in Belvidere. Three thousand lost positions at Motorola. And now even toymaker Mattel, which has a factory in Aurora, says it will axe 1,000 jobs across the country ahead of the holiday shopping season.

An economic crisis that has claimed banks and the housing market now is sweeping away jobs. And Chicago is not immune.

Mattel's American Girl flagship store on the Magnificent Mile doesn't seem to be suffering.

"We decided to shop in our favorite city, which is Chicago even though the whole world has no money," said Henry Marsh, visiting from England.

But shoppers know that the good times of spending on easy credit are over.

"Will my job be next? Will my husband's job be next? We are going to need to, I think, be a little more homemade in the gifts this year," said Michelle Langenfeld of Chicago.

That sentiment is at the heart of California-based Mattel's announcement to retrench for tough economic times now, ahead of a toymaker's most important time of the year.

In a statement, Mattel said cutting 8 percent of its global workforce is "an extremely difficult (decision); particularly considering the impact this action will have on our employees and their families."

"Usually, a toymaker would hold off cutting jobs 'til January or February because they have the season in front of them. Doing it right now suggests they just see the future demand is not going to be there," said John Challenger.

Detroit is angling for $50 billion in federal help to stay afloat. In the last quarter, GM says, it lost $4.2 billion; Ford lost $3 billion. And with the price of oil dropping, banks unwilling to lend and skyrocketing joblessness, Challenger says a new level of pain is ahead for everyone.

"There are many more people unemployed," Challenger said. "I think most everyone knows a friend, family and relative unemployed or worried about their jobs."

In Chicago, the U.S. Postal Service has already hired 120 people for holiday work, a tenth of the seasonal workforce they employed last year. They say they're expecting people to send fewer holiday packages. And retailers know folks with fewer job prospects tend to keep their wallets closed.

"A lot of people are shopping on price now, but they also want to know they are getting a good experience out of it," said Jon Abt, Abt Electronics.

The jobless rate zoomed to 6.5 percent in October from 6.1 percent in September, the Labor Department said Friday. Last month's total matches the rate in March 1994.

Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.

October's decline marked the 10th straight month of payroll reductions, and government revisions showed that job losses in August and September turned out to be much deeper. Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.

Ford said it lost $129 million in the third quarter and went through $7.7 billion in cash. The company said it will cut another 10 percent of its North American salaried work force costs as it tries to weather the worst economic downturn in decades.

In the 1980-1982 recession, the unemployment rate rose as high as 10.8 percent before inching down.

Stressed consumers are cutting back on their shopping and trying to trim their debt. Economists believe consumers cut back on borrowing in September.

Nearly half a million Americans filed new claims for unemployment benefits in the last week alone, and skittish shoppers handed many retailers their weakest sales since 1969, government reports out Thursday showed.

The Labor Department said new filings for jobless benefits clocked in at 481,000, a dip from the previous week but a still-elevated level that suggests companies are resorting to big layoffs to cope with the economy's downturn.

Hartford Financial Services Group Inc., Circuit City Stores Inc., drug maker GlaxoSmithKline PLC, chip maker Advanced Micro Devices Inc., auto parts maker Dana Holding Corp., cable operators Comcast Corp. and Cox Communications Inc. and Fidelity Investments are among the companies that recently have announced layoffs.

To provide fresh relief, House Speaker Nancy Pelosi said Democrats, in a lame-duck session later this month, would push to enact another round of economic stimulus to provide more relief, which could include extending jobless benefits.

A $168 billion package, including tax rebates for people and tax breaks for businesses, was rolled out earlier this year. Short of a package of $100 billion or more, the House could press the Senate to pass a smaller $61 billion measure that would bankroll public works projects to help generate new jobs and would extend unemployment benefits.

Companies are begging for help, too. The leaders of General Motors, Ford and Chrysler and the president of the United Auto Workers union came to Capitol Hill to discuss billions of dollars more in financial help.

Reeling from layoffs and watching their wealth shrink as home values and nest eggs have been clobbered, shoppers turned extra frugal last month and sent sales at many retailers down sharply.

Michael P. Niemira, chief economist at the International Council of Shopping Centers, summed up the situation as "awful."

According to the ICSC-Goldman Sachs index, sales fell 1 percent, the weakest October performance since at least 1969 when the index began.

Target Corp. and Costco were among the many retailers reporting sales declines last month. Even teens stayed away from malls. American Eagle Outfitters Inc. and Abercrombie & Fitch Co. reported drops in sales. But Wal-Mart Stores Inc., the world's largest retailer, logged a sales gain as shoppers hunted for bargains.

The Federal Reserve ratcheted down interest rates last week to 1 percent and left the door open to further reductions in a bid to prevent a drawn out recession in the United States.

The country's economic state has rapidly deteriorated in just a few months. The economy contracted at a 0.3 percent pace in the July-September quarter, signaling the onset of a likely recession. It was the worst showing since 2001 recession, and reflected a massive pullback by consumers.

As U.S. consumers watch jobs disappear, they'll probably retrench even further.

That's why analysts predict the economy is still shrinking in the current October-December quarter and will contract further in the first quarter of next year. All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity.

The Associated Press contributed to this report.


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