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Forget all talk of soft landings. The shocking jobs data from the US yesterday should remove the last doubt about the potential of the current crisis to turn into the most serious economic shock to the global economy since the 1930s.
The fact that the world's biggest economy shed 533,000 jobs last month smacks of a slump. While it is unlikely to prove as long and as deep as the Great Depression, more jobs were lost last month than at any time since 1974, when the decision by Opec to turn off the oil taps brought the postwar boom to a shuddering halt.
To make matters worse, the jobless figures for September and October were revised sharply higher so that payrolls were down by 1.25 million over the latest quarter.
Some analysts saw hope in the fact that the unemployment rate rose only modestly from 6.5% to 6.7%. But that was because more than 400,000 people left the labour force altogether last month, presumably on the grounds that there was no prospect of finding work.
Nor was this a temporary shakeout precipitated by the collapse of Lehman Brothers. Revisions to the back data show payrolls were down by more than 400,000 in September, before the escalation in the financial crisis had any effect.
Apart from any impact on shares, bonds and the dollar, yesterday's woeful jobs data will have three consequences. If 1.25 million people suddenly stop earning a wage, there will be an impact on consumer spending. And if consumers are not spending, companies are not going to invest - even assuming that they can get the finance. We are likely to see output contract at an annual rate of about 4% in the fourth quarter - and it could be even worse. And what happens to America matters to everybody else, especially the big exporting nations: China, Germany, South Korea, Japan.
The second effect will be social. America does not have the generous welfare nets enjoyed in Europe, so unless those made jobless can quickly find work, there will be hardship, poverty and the threat of disorder.
The need to put people back to work leads to the third consequence. There will be further interest rate cuts by the Federal Reserve and other "unconventional" measures to drive down long-term rates. There will be suggestions that America can't wait for the $500bn fiscal stimulus the president-elect is planning. And there will be help for the motor industry. One of the few
Americans likely to have found hope in yesterday's report will be Rick Wagoner, the boss of General Motors.
- Credit crunch
- Global recession
- US unemployment and employment data
- US economy
- Oil
- Shares
- United States
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