Year-over-year Employment Change now -0.2%

The U.S. employment situation continues to deteriorate. The year-over-year change in total employment has dropped below zero percent for the first time since the tail end of 2003. The month-to-month job declines began in January of this year and have now accumulated to a figure of 600,000. To put this in perspective, the total number of jobs lost in the last downturn, from mid-2001 all the way to year-end 2003, was close to 3 million.

The accompanying graphs show that there is no sign yet of total job losses bottoming out. However, there are indications of a leveling off of the decline in certain sectors. The three most prominent are construction (at -5.7%), financial activities (-1.3%) and information services (also -1.3%). It was demonstrated in 2002 and 2003 that the economy can continue to grow even as employment declines. But it makes the task much harder.

Domestic Economy versus Trade-related Economy
Consider the present circumstances. The U.S. domestic economy is weak due to depressed housing starts, poor auto sales and tight credit. Consumers are less confident about making major purchases on account of falling house prices and a poorer jobs outlook. But the foreign trade sector of the economy is doing much better. A surge in exports has allowed real (inflation-adjusted) Gross Domestic Product (GDP) to expand at a 3.3% annualized pace in the second quarter of this year versus the first.

U.S. GDP growth for the full year 2008 is now expected to be around 1.5%. Beyond this year is where the analysis starts to get tricky. First, there is the uncertainty about who is going to win the Presidential election on November 4th. This will have significant tax and spend implications.

Then there are the dynamics of the domestic market versus the world market. U.S. at-home weakness has caught the rest of the world in its web. Purchases from overseas are not as robust as previously. As a result, Europe’s economy is slowing, as are those of Japan and China. U.S. exports will not have as easy a time of it next year as this year.

2009 GDP Growth to be 1.5% to 2.0%

At home in the U.S., housing starts should start to perk up a little in 2009. The air-pocket drop in commodity prices will take pressure off the Consumer Price Index. The problems in the financial sector should settle down, causing a relaxation in lending standards between institutions. The net effect should be a U.S. economy that grows at least as fast next year as this year, say at a pace of 1.5% to 2.0%.

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