Spending Stalls and Businesses Slash U.S. Jobs

As the financial crisis crimps demand for American goods and services, the workers who produce them are losing their jobs by the tens of thousands.

Layoffs have arrived in force, like a wrenching second act in the unfolding crisis. In just the last two weeks, the list of companies announcing their intention to cut workers has read like a Who's Who of corporate America: Merck, Yahoo, General Electric, Xerox, Pratt & Whitney, Goldman Sachs, Whirlpool, Bank of America, Alcoa, Coca-Cola, the Detroit automakers and nearly all the airlines.

When October's job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.

"My view is that it will be near 8 or 8.5 percent by the end of next year," said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s.

Companies are laying off workers to cut production as consumers, struggling with their own finances, scale back spending. Employers had tried for months to cut expenses through hiring freezes and by cutting back hours. That has turned out not to be enough, and with earnings down sharply in the third quarter, corporate America has turned to layoffs.

"People have grown very nervous," said Harry Holzer, a labor economist at Georgetown University and the Urban Institute, tracing cause and effect. "They have seen a lot of their wealth wiped out and as they cut back their spending, companies are responding with layoffs, which hurts consumption even more."

The unemployment is widespread, with Rhode Island the hardest hit.

***

The current unemployment rate, 6.1 percent — up more than a percentage point since April — is still relatively mild by post-World War II standards. The highest level since the Great Depression, 10.8 percent, came in November and December of 1982 as the economy was shaking off a severe recession.

The unemployment rate hit 9 percent during the mid-1970s recession, and 7.8 percent in the 1990-1991 downturn. The next peak, 6.3 percent, occurred in June 2003, during a long jobless recovery in the aftermath of the 2001 recession.