May 5, 2003
Is the Recession Deepening?
Employment and manufacturing data for April indicate that conditions are worsening in these two vital areas of the economy. The long-held posturing of the Federal Reserve that “the first faint signs” of a strengthening economy are visible in the data and that a business expansion should be fully underway a quarter or so in the future is beginning to grow trite. Chairman Greenspan may mumble reassuring comments in his congressional testimony (albeit, largely incoherent at times), the facts of the matter are entirely different.
Employment data for April indicate that jobs were cut for the third consecutive month. The data for April indicate that nonagricultural jobs declined by 48,000 during April. (Presumably, this figured is calculated after the monthly addition of 60,000 jobs to the data – an estimated number of jobs missed in the government count.) This drop follows a total decline of 477,000 jobs in the previous two months. In total, manufacturing and service sector jobs saw a decline of 525,000 jobs in the past three months. Economists, both in the private and public sector, now admit that they underestimated the extent of unemployment. The latest weakness brought the unemployment rate to 6.0%, up from 5.8% the previous month.
In conjunction with the unemployment rate, the average workweek dropped 0.3%. What this decrease means is that employers do not have sufficient work to keep their workers productive even with the previous job cuts. The data indicate that further weakness in the employment market is likely.
Underlying the discouraging employment picture is the weakness in the manufacturing sector. Manufacturers cut 95,000 jobs during April – the 33rd consecutive drop in manufacturing employment and, we suspect the longest streak since the Great Depression.
Capacity remains a problem for manufacturers. The latest data indicate that the capacity utilization rate for all manufacturers is 73.4%. For durable goods manufacturers, the capacity utilization rate is less than 70%. Until final demand picks up and capacity utilization rates reach 75% to 80%, employment is unlikely to pick up. For the time being, America’s largest export is jobs – jobs exported to the low-cost nations of Asia. As a recent example, GE Capital will add 15,000 data processing jobs in India.
We will continue to scan the horizon for Mr. (Sir) Greenspan’s economic recovery. Regrettably, we have yet to detect any signs, faint or otherwise, of a recovery in the making.