Unemployment points to weak economy

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Renita Jablonski: GMAC Financial Services is closing all of its 200 retail offices and laying off about 5,000 employees. The lender says it's part of a plan to reduce its mortgage lending and servicing because of the housing market downturn. Tomorrow, the Labor Department will report unemployment numbers for August. Our economic correspondent Chris Farrell is with us now. Chris, what's the expectation for Friday's report?

Chris Farrell: Well, the sense is we're going to get more bad news. The unemployment rate will stay at 5.7 percent, four-year high. No big change there. But in terms of payrolls, the consensus expectation, according to a Bloomberg news survey, is that employers cut about 75,000 jobs. This will confirm the weakness in the economy.

Jablonski: And where are the job losses coming from at this point?

Farrell: Well, all the job losses have been in the blue-collar sector of the economy. Health care and education and government have been relatively immune. I'm talking relatively. But now you're also getting a sense of, like Marvel Technology Group, they're a maker of chips for the Blackberry, they're saying: aaaah, it doesn't look too good going ahead. So we might start seeing the job losses spread, into more of the high-tech sector, which has held up relatively well during this downturn.

Jablonski: So, what will this number mean for what Ben Bernanke and the rest of the Federal Reserve is thinking right now?

Farrell: I think it will increase the pressure to sort of stay the course. You know, the Fed's been going through this very vicious discussion right now about inflation vs. the economy. And a weak employment number, boy, that's going to make Bernanke feel a little bit stronger in his position, which is the economy's weak; I'm not going to worry about inflation.

Jablonski: But I have heard that a 5.7 percent rate that we're talking about right now as far as unemployment goes is still relatively low.

Farrell: It is relatively low, considering everything that has happened in this economy, you know, with the housing market, manufacturing. But I'd like to sort of twist this a little bit. Why do we think that a 5.7 unemployment rate is relatively low. That's a lot of people out of work. And I think it really is a longer term story. It's not just a story about whether this is a recession or a downturn, or you know the highest unemployment rate in four years. In the 1970's, we began to accept a 4 percent, a 5 percent, a 6 percent rate of unemployment. I mean, that was just in order to keep inflation tame, that was one of the things that happened. And I think it's absolutely outrageous that we still worry more about inflation than the Labor Market. And a 5.7 percent or 5 percent unemployment rate is unacceptable.

Jablonski: Economic correspondent Chris Farrell. Thanks so much.

Farrell: Thanks a lot.

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I just wanted to write to say thank you and express my great love for Chris Farrell, in an intellectual fangirl sort of manner, for his comment that 5.7% unemployment is still too high. As a single mother who has to commute 140 miles roundtrip a day to her job in the finance sector, I constantly worry about Reductions in Force even as I see the "For Sale by Bank" signs go up around my neighborhood. Here in Ohio, unemployment is a real problem. It is almost impossible not to talk to at least one person a day with a spouse unemployed or who works at a company with a potential layoff pending. The powers in Washington, both present and incumbant need to realize the simple fact that 5.7% unemployment means millions of American families struggle each day. It is an unacceptable number and it was great to hear an economist come out and say it.

Companies are searching to establish their natural place in todays world economy, sometimes negativly influencing us here at home. I'm talking of course about the adolecent companies who have ballooned in size as well as employee growth rates to meet the demands of the world market are deflating, that coupled with the credit crunch and the mortage crisis we're really felling the effects of poor desicion making. Companies who offer products or services that depend soly upon an individuals discretionary income are especially vulnerable,inflation up,discretionary/overall spending down. There's no time for a formal education and past business models are somewhat outdated, companies now are enrolled and are attending the school of hardknocks:economics 201. Consumers/employees are feeling it. Ultimatley fewer consumers are spending more and getting less. The upside is these companies will react much faster. They are part of the problem,now they need to be part of the solution. Inflation is something that effects every consumers bottom line negativly,the downside to that is the unemployment rate hasn't felt the full adverse effects of inflation. Let's face it unemployed consumers don't help companies grow. It will take some time for companies to navigate their way through these troubling times,companies who are equipped with the necessary tools to see these times through:cash,lean philosophies,and a pro-active management approach will help balance inflation and encourage lower unemployment rates.

I think Chris Farrell is way off in his assessment of the unemployment rate. Four percent, Five percent, or Six percent unemployment rate acceptance is not a result of the economy in the 1970's, but the fact that "Natural Unemployment" is four percent in our economy. Natural unemployment is defined by workers who are moving between jobs and anything above that is real unemployment. Workers will naturally move between employers. Especially is today’s work live where a worker can expect to change employers a least three times in a career unlike in the past when you went to work for a company after high school and worked till retirement. This is what I was taught when I studied economics at the University of Pittsburgh. Chris should know this as well. I think his comments are based more on politics than on economic fact. The fact is that unemployment has been very low over that last four years and if you wanted a job and had a skill for the most part in this economy you could find one. This may or may not be a result of anything the GOP has done, but it is the reality.

Why do some well-off economists think that a 5.7 unemployment rate is relatively low? Because historically we had a cyclical economy. For example manufacturing would regularly have cycles of lay-off during which time they would retool. Then the unemployment would go to 7%, but - and a big point - it would then dive down to 3%. No more. 5.7% is not the high point of a bust cycle. It is permanent. And more, it speaks to unemployment in the service economy where wages are much lower. These are not good times to be taking what they're givin' and workin' for a livin'.

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