Economic indicators: Job numbers point to “the brink” of recession
Jim Fulcher, contributing editor -- Manufacturing Business Technology, 1/16/2008 12:11:00 PM
Faced with rising energy and materials costs, along with the effects of the U.S. housing market downturn, some manufacturers and other types of companies have been forced to lay off part of their workforce. That number has grown quickly, too.
And while, historically, the country’s 5-percent unemployment rate is still relatively low, it did rise 0.3 percent in December—a dramatic change that indicates the economy is on the verge of entering a recession, says Dan North, chief economist at Euler Hermes ACI, an Owings Mills, Md.-based provider of trade credit insurance and accounts-receivable management solutions.
“Every recession we’ve had since the 1970s has been accompanied by an increase in unemployment of that size,” North says.
North has been forecasting what he terms a “sharp slowdown” for the economy since last March based on the Federal Reserve’s tightening of monetary policy from 2004 to 2006, spiking energy prices, and the burst asset bubble of the U.S. housing market. But while the signs of a weak economy are everywhere, the employment situation had—until now—masked the economy’s true state.
“The last thing to go is employment—everyone feels good about the economy when everyone has a job,” North says. “However, the latest report showing a sharp increase in the unemployment rate along with very weak job creation, indicating we’re on the brink of a recession.”
Once the employment picture turns negative, which North forecasts will happen this quarter, it will be too late for the Federal Reserve to make any meaningful policy changes to keep the economy from sliding into recession. However, he does believe the Fed will keep cutting interest rates “perhaps down to 3 percent,” which will help the economic recovery.
“We’re going to see a slowdown in general, and, most likely, a recession,” North says. “But I’m pretty convinced that it’ll be fairly short-lived and not too sharp. The Fed interest rate cuts that started last September should start to help by the fourth quarter of 2008, or early 2009.”
