News Analysis

2008 Job Losses: Bad News, But Hardly 1945


The U.S. is in the grip of a bad recession, but let's not scare ourselves silly by making things seem worse than they really are. Headlines blared "worst since 1945" on Jan. 9 after the Bureau of Labor Statistics announced the U.S. economy lost 524,000 jobs in December and 2.6 million for 2008 as a whole. Fact is, it's ridiculous to compare job losses in 2008 to ones more than 60 years earlier, when the U.S. population and economy were much smaller.

In percentage terms, the U.S. lost 1.9% of its payroll employment in 2008, according to data released Jan. 9. That's bad, all right. But it was only the fifth-worst on the list behind 1945 (6.6%), 1949 (3.4%), 1982 (2.3%), and 1944 (2.1%). That's according to calculations by Harm Bandholz, an economist at UniCredit Group in New York. Bandholz, by the way, was one of the people who highlighted the "worst since 1945" in his research report headline.

In a note before the government report came out, financial blogger Barry Ritholtz warned against the temptation to exaggerate the significance of the December job loss. Ritholtz is bearish on the economy and said, "I do not expect to see any sort of jobs recovery until deep into 2010 at the earliest." But he said monthly numbers don't reveal too much because they fluctuate. Noted Ritholtz: "A 500k job loss is still less than a third of a percent of the labor force."

If you want to make long-term historical comparisons of recessions, a better measure to use is the unemployment rate. The Labor Dept. says it reached 7.2% in December, up from 6.7% in November. That's bad. But it's still not as bad as in the early 1990s, when it hit 7.6%, let alone the early 1980s, when it topped out at 10.8%.

How Bad, How Fast?

Is it good news that things aren't quite as awful as the headlines say? Not exactly. It could just mean that, as bad as things seem now, the economy has room to get even worse. In fact, the U.S. economy almost certainly will lose more jobs this year. The only thing economists disagree on is whether the economy will get worse at a faster or a slower pace in the months ahead.

Certainly December was a gloomy month. The only sectors that posted gains were education and health care, and government. The economy suffered big losses in retail, manufacturing, construction, temporary help, and finance, among other sectors. Swiss Re's Chief U.S. Economist Kurt Karl wrote on Jan. 9 that one key indicator says the current recession will be at least as bad as the one at the beginning of the 1980s. Capital Economics Senior Economist Paul Ashworth said on Jan. 9 he expects the U.S. unemployment rate to peak at 9.5%—and not reach that level until the second half of 2010, nearly three years after the recession began.

On the relatively optimistic side of the economic outlook, Ellen Zentner, senior U.S. economist at Bank of Tokyo-Mitsubishi UFJ, said before the report that December 2008 might end up being the worst month of the recession in terms of job losses. Zentner was the most accurate forecaster of November payroll losses in Bloomberg's monthly survey. She underestimated the loss, which turned out to be 533,000 jobs, but others were even further off. (The November job loss was revised upward on Jan. 9 to 584,000.)

Zentner thinks things will start looking up in the new year. "The buzz is that December's numbers are abysmal, shocking even. But the general hope, or the feeling really, is that December could be the worst of those dismal numbers," she says. "The losses will not be as great going forward."

Employers Front-Loading Job Cuts

Jessica Hoverson of MF Global (MF) in Chicago is gloomier than Zentner about the 2009 outlook. Before the report, Hoverson, who is a fixed-income and foreign-exchange futures analyst, said: "We see the next couple of months as exceptionally poor. I wouldn't be surprised if we moved into down 700,000 or 800,000 jobs [per month] in this environment."

Tig Gilliam, CEO of the North American group of temporary-help giant Adecco, says job losses in December and January are being amplified by employers who want to cut a lot now so they won't have to dribble out smaller cuts in the months to come. Says Gilliam: "I've had more and more conversations where companies are saying it's clear now that this economic turnaround isn't coming quickly. They're saying we've got to get in front of this."

Coy is BusinessWeek's Economics editor.


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