U.S. Labor Market Still in Free-Fall

The overall magnitude of February's job losses and their distribution across almost all major sectors was depressingly very similar to January. The only major sectors adding jobs last month were healthcare and local government.

Manufacturing cut 168,000 jobs in February, shallower than the 257,000 plunge in January. That's largely because the auto sector shed only 1,000 jobs last month, after losing 69,000 in January, when production cutbacks were at their most severe. It is not a sign that auto employment is bottoming out. There were continued heavy job losses in most other sectors of manufacturing, notably fabricated metals (down 28,000) and machinery (down 25,000). Only petroleum and coal products added workers. Not only did manufacturing employment fall, but hours per week declined another 0.5%, as overtime was reduced. Hours worked fell 2.0% in manufacturing, as producers tried to bring excess inventories down.

Construction lost 104,000 jobs, with heavy cutbacks in both the residential (down 51,000) and nonresidential (down 48,000) segments. Residential construction has fallen so far that the downside is limited from here, but that is not the case on the nonresidential side, where the downturn is only gathering force now.

The service sector lost 375,000 jobs, with the cuts widespread. Retail trade (down 40,000), wholesale trade (down 39,000), and transportation and warehousing (down 49,000) all lost heavily, as the flow of goods through the economy continued to weaken. The financial sector lost 44,000 jobs. Low-end temporary help jobs fell 78,000, while high-end professional and technical jobs fell 37,000, with architectural and engineering services hit especially hard (down 16,000). Accommodations and food lost 32,000 jobs, as businesses are squeezing expense budgets and households are cutting back on leisure spending. The only major private sector still adding jobs was healthcare (up 27,000).

Government employment was up 9,000 overall, with the jobs all coming in local education (up 13,000), an increase that is hard to understand given extreme budget pressures.

There is no silver lining to be found. The most comprehensive measure of underemployment—which includes workers who would like a job but are not currently looking, plus those working part-time who would rather work full-time—has now risen to 14.8%, up from 13.8% in January. This rate has risen 5.8 percentage points over the past 12 months, while the official unemployment rate has risen 3.3 percentage points. The difference is mainly accounted for by an increase in involuntary part-time work.

There is no end in sight to heavy payroll declines, as high-profile layoff announcements keep coming, and initial unemployment insurance claims are running well above 600,000. At present, the U.S. economy is locked in a vicious downward spiral, both within the real economy (as job losses and order reductions reduce consumer and business incomes and lead to further spending cuts and job reductions) and between the real and financial economies (as the real economy worsens, financial losses mount and the financial sector becomes yet more cautious about lending).

The downward momentum remains severe. We have now lost 4.4-million jobs since the cyclical peak in December 2007, with 2.6 million lost in the last four months alone. Despite the administration's efforts to revive the financial sector and stimulate growth, we are heading for total job losses of at least 7 million and an unemployment rate peaking above 10%.