December's Job Loss Was Bad. But How Bad?


Employers cut 524,000 jobs in the U.S. last month, but even a number that alarming needs the right context

The U.S. is in a severe recession, but things still aren't as bad as during the worst days of the 1973-75 downturn. That's according to a BusinessWeek analysis of records from the Bureau of Labor Statistics going back to 1939. Headlines overstate the severity of the crisis when they report on payroll losses being the worst in decades. The reason: The U.S. economy is much bigger now, so it's only natural that job losses in a recession are going to be bigger as well.

Expect to see some dramatic headlines on Jan. 9, when the Labor Dept. reports on job losses in December. The number of lost jobs came in at 524,000—better than the 625,000 or more that some economists had been expecting. A drop of 625,000 would have been the biggest decline in U.S. nonfarm payrolls since October 1949. On the other hand, as a percentage of total employment, that number would have been only the biggest since May 1980. That's a more legitimate comparison.

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%.

Is it good news that things aren't quite as bad 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.

Fewer Losses Ahead?

On the relatively optimistic side of the economic outlook, Ellen Zentner, senior U.S. economist at Bank of Tokyo-Mitsubishi UFJ, says that December 2008 might end up being the worst month of the recession in terms of job losses. She's looking for a decline of 636,000. 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.

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."

Jessica Hoverson of MF Global (MF) in Chicago, who predicts December job losses of 645,000, is gloomier than Zentner about the 2009 outlook. Says Hoverson, who is a fixed-income and foreign-exchange futures analyst: "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 temp 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."

Bloomberg's survey shows economists sharply divided over the December payroll number, with estimates of losses ranging from 350,000 to 750,000. The median is 523,000, a smidgen less than the November number, but that includes some out-of-date forecasts made in late December.

Coy is BusinessWeek's Economics editor.

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