Joblessness Probably Rose to 25-Year High: U.S. Economy Preview

Unemployment in the U.S. probably climbed in April to a 25-year high, showing the labor market will be one of the last areas to emerge from the worst recession in at least 50 years, economists said before reports this week.

The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report. Other figures may show service industries shrank at a slower pace.

Companies may keep trimming staff and spending in a bid to shore up profits until sales show sustained gains, something economists say is unlikely to happen for months. Even when an economic rebound begins to take hold, the loss of jobs and smaller paychecks are likely to lead to a muted expansion.

“The recession will be officially over this year, but the recovery will be sluggish,” said Michael Gregory, a senior economist at BMO Capital Markets in Toronto. “Getting out of the jobs recession will take longer.”

An estimated 600,000 workers were cut from payrolls last month, according to the survey median, bringing total job losses since the recession began in December 2007 to 5.7 million, the most of any economic slump in the post-World War II era.

It’s “hard to fathom any sustained strength in consumer spending” until the “hefty” job losses ease, said BMO’s Gregory, who estimated the unemployment rate may rise to 9.5 percent by yearend and level off around 9.7 percent in 2010.

GDP Shrinks

Gross domestic product dropped at a 6.1 percent annual pace in the first three months of this year after contracting at a 6.3 percent rate in the last quarter of 2008, government figures showed last week. Consumer spending climbed, ending its biggest slide since 1980.

Still, economists surveyed by Bloomberg in early April projected spending, the biggest part of the economy, will falter again this quarter before showing more sustained gains in the second half of the year.

Automakers have been among the hardest hit industries as consumers boost savings and pay down debt. Vehicles sold at a 9.3 million annual pace in April, less than forecast and down from a 9.9 million pace a month earlier, industry figures showed last week.

A liquidation by Chrysler LLC, which the government pushed into bankruptcy on April 30, would result in the loss of 38,500 jobs should its proposed partnership with Italy’s Fiat SpA be rejected by the court, the company estimated.

Fewer Dealers

General Motors Corp., surviving on U.S. loans, is working to beat a June 1 bankruptcy deadline set by the government. GM’s plan to trim its retail franchises may eliminate as many as 137,330 dealership jobs, the National Automobile Dealers Association estimated.

Economists project the Labor report may show manufacturers cut payrolls by 157,000 workers in April after a decline of 161,000 a month earlier.

One bright spot last month may have been government staffing for the 2010 census. The U.S. Census Bureau began hiring 140,000 temporary employees in April to start conducting the population count that happens once every 10 years. They are the first of more than 1.4 million people it will hire over the next year.

Another report may show service providers, which account for almost 90 percent of the economy, are starting to improve. The Institute for Supply Management’s index of non-manufacturing businesses probably climbed to 42 in April, according to the Bloomberg survey. Readings below 50 signal contraction. The Tempe, Arizona-based group will release the figures on May 5.

Casinos Hurting

The deteriorating labor market is one reason service industries are still shrinking, albeit at a slower pace. Las Vegas-based Wynn Resorts Ltd.’s revenue is down as business at casinos slows, Chief Executive Officer Steve Wynn said last week.

“People who have lost their jobs and whose businesses are in trouble don’t have money for leisure and optional expenses,” Wynn said in an April 28 speech in Beverly Hills, California.

The ISM’s gauge of manufacturing climbed to 40.1 in April, signaling the worst of the factory slump may be over, figures showed last week.

Employers are trying to get more out of the staff they have left to give profits an added lift. Labor Department figures on May 7 may show productivity grew at a 0.8 percent annual pace in the first quarter as companies slashed payrolls and hours even faster than output slumped, according to the Bloomberg survey.

Tomorrow, the National Association of Realtors may report the number of Americans who signed contracts to buy previously owned homes was probably unchanged in March as lower prices attracted buyers, according to the Bloomberg survey median.

The same day, the Commerce Department may say spending on construction projects fell in March for the sixth consecutive month, economists in the Bloomberg survey forecast.