By Moe Bedard
Late last year Ben Bernanke indicated the American recession may taper off in 2009. The Federal Reserve Bank President of Dallas, Richard Fisher has a very different opinion of the state of affairs. American’s are experiencing an unemployment rate of over 8% and Mr. Fisher expects the jobless rate to increase to 10% or more by the end of 2009.
How can anyone predict anything but increasing unemployment? Americans are scared, spending less of their money and we are a consumer based economy. Calculate in to this equation the fact that foreclosures are increasing and what you are left with is a serious predicament. So serious that a recent Bloomberg article described the state of affairs as “a self- reinforcing cycle of rising unemployment and slumping business and consumer spending.” Obama’s top economic aid, Lawrence Summers, agrees indicating that “I don’t think we can hold out the prospect that unemployment would stabilize at the current level” (AFP).
Consumer spending plays an important role in predicting the health of our consumer based economy. When consumers have decreasing confidence in the markets, they tend to spend less. Consumer confidence in the markets is presently decreasing according to the latest data available yesterday (Reuters). Moreover, the consumer confidence index is close to hitting its record low.
In difficult economic times many employers have opted to reduce their numbers of permanent, salaried employees and hire contract workers and temps. However, even these categories of labor are being reduced. According to Business Week, “companies from Wall Street to Silicon Valley are casting off temporary workers and freelancers left and right, typically without any severance pay.” When these workers leave the labor markets two problems exist: first, they are often not counted in the number of “unemployed workers” meaning the true number of out of work people in America is inaccurately tabulated and, as such, there is probably a much higher percentage of Americans out of work than the common statistic of 8.5%. Secondarily, and more important in a consumer based economy, “the people who lose their jobs will be forced to cut spending drastically, particularly because many of them earn below-average pay and thus have little savings to fall back on. The overall result is a decrease in demand, further depressing the economy” (Business Week).
If you ask anyone on Main Street what they think about the near future prospects of the labor markets you quickly realize that it doesn’t take the Federal Reserve Bank President of Dallas to convince us that we are in for difficult times ahead. So, what’s the solution if you are out of work, fearing job loss or considering a new field? Make sure you read the bureau of labor statistics reportsavailable on line and our last post titled “Bureau of Labor Statistics Employment Projections.” Planning ahead and knowing where the labor market trends are heading is the best defense in a difficult economy.
