Little to cheer on Independence Day

The world's biggest economy marked Independence Day with little cause for economic cheer. Job losses are the worst in nearly six years and a de facto recession appears to have gripped all sectors. Statistics released in the run up to the July 4 national holiday offer little hope of an early turnaround. Developing and wealthy countries alike are feeling the effects of the slowdown here. Economic woes top the list of voters' concerns in this election year, according to numerous opinion polls. Job losses, in particular, are causing anxiety and contributing to the lowest levels of consumer confidence about the future in more than a decade. "Far too many Americans will spend this holiday out of work and struggling to provide for their families because of the failed policies of the last eight years," Barack Obama, the Democratic contender for the presidency, said Thursday. Said John McCain, Obama's Republican rival: "Washington can no longer abdicate its responsibility to act. Our focus must be clear: enact policies to create jobs today." Employers have jettisoned nearly half a million workers–438,000–so far this year, the Labor Department said on July 3. In June alone, they laid off 62,000 jobs, more than economists had predicted and the sixth straight month of net job losses for the economy. Massive job losses overwhelmed the few gains seen in health care, education, the hospitality industry, and the government. The economy needs to generate more than 100,000 new jobs every month just to keep up with new entrants into the job market. A day earlier, leading payroll processor Automatic Data Processing Inc. (ADP) said non-farm private firms jettisoned 79,000 workers last month, the biggest job loss since November 2002. The national unemployment rate held steady at 5.5 percent–a full percentage point higher than a year ago, according to the Labor Department. Nationwide, there were 8.5 million people last month, up from 7 million a year ago. The government's figures likely understate the problem, however, as they exclude people who have given up looking for a job, and those knocked out of full-time employment and into part-time jobs against their will. Many economists say the unemployment rate likely will continue to rise well into 2009, topping 6 percent along the way. June's "decrease in employment was broad based across industrial sectors and suggests continued weakness in employment," said Joel Prakken, chairman of Macroeconomics Advisers LLC, which crunched ADP's payroll data for the July 2 report. Goods-producing companies dominated last month's bloodletting with 76,000 workers let go–the sector's nineteenth consecutive month of decline. The manufacturing sector offloaded 44,000 workers for its twenty-second straight month of job losses, ADP said. But the services sector, which had continued to grow steadily as other parts of the economy stalled, posted its first jobs decline since November 2002, laying off 3,000 workers, according to ADP. The private Institute for Supply Management (ISM) confirmed the reversal of fortunes on July 3, announcing in a widely anticipated report that its services sector index fell to 48.2 in June from 51.7 in May. A reading below 50 reflects contraction. The ISM manufacturing index for June rose unexpectedly to 50.2 but the group said this was just a spurt and warned that unsold goods were piling up and likely would lead to further retrenchment. The purchasing managers' association blamed the downturn mainly on rising costs of fuel, food, and raw materials. Factory orders for capital goods–machines and other products used in making other products–also are falling, the Commerce Department said on July 2, providing further indication that businesses faced with dwindling profits are paring their spending on plant and production capacity. The department also reported an increase in unsold goods. The US housing recession, now in its third year, continues to claim livelihoods in the home-building industry and among finance firms specializing in home sales and mortgage lending. ADP's payrolls review "suggests no lessening of the recent strain on employment in these industries," said Prakken. Builders have axed 349,000 jobs in the past two years and housing finance firms cut 3,000 jobs last month alone, according to ADP. Worse is to come. Countrywide Financial Corp. said last week 7,500 jobs would be cut as Bank of America Corp., the second-largest US bank, acquires the troubled mortgage lender. What's more, job losses are spreading to other parts of the service economy. Starbucks, that symbol of business expansion, said it would close 600 of its US coffee shops in the year ahead–or nearly one in every five stores opened in the past two years. The company said it would serve termination notices to 12,000 employees, about 7 percent of its global workforce. Airline employees also are bracing for job losses, as are workers for Chrysler and other US automakers, some of which said this week their sales had fallen to 15-year lows. More pain is to come, economists say, and it will be felt around the world. The International Monetary Fund (IMF) and World Bank have issued multiple warnings since late last year that a stagnating US economy is dragging down other countries and could lead to global recession. Latin America and countries linked to the feeble US dollar have been hit hard but losses also have struck major traders China and India. Economic woes in the rich countries also could sap the world's aid-dependent poorest countries, the IMF has warned. International experts had hoped governments with sizable currency reserves and those with relatively little dependence on US aid, investment, or export markets might ride out the storm. But the IMF warned this week that runaway commodity prices were eating into some countries' finances.