Even before Sept. 11 triggered a huge round of layoffs in the travel and tourism industries, US companies were getting more aggressive in their efforts to cut costs. And since labor is the biggest cost for business, guess who was the biggest loser last month? Non-farm payrolls fell 199,000 in September, the biggest drop in 10.5 years, with 196,000 of the losses coming in the private sector.
The plunge in private payrolls is just shy of the average monthly loss of 226,000 in the first quarter of 1991, the worst quarter for hiring in two decades. In other words, the behavior of the labor market was recessionary prior to the attack on the World Trade Center.
Things will be worse next month. The Bureau of Labor Statistics said "the events of Sept. 11 had little effect on the September employment and unemployment counts" since people paid for any part of the reference week (the week of Sept. 12) are considered employed for the purposes of this report.
The unemployment rate held steady at 4.9 percent because employment, as measured by a survey of households, rose 788,000, pacing the increase in the labor force. That September gain comes on the heels of a stunning 986,000 loss in August (just one reason the survey of establishments, from which non-farm payrolls is derived, is considered more reliable).
Factories shed employees for the 14th consecutive month, bringing the cumulative loss since July 2000 to 1.1 million.
Service-producing industries lost 102,000 jobs last month, the biggest decline in over a year. Losses in that sector are proliferating, with finance, insurance and real estate the only major category within private service-producing industries to show an increase.
Jobs in straight services industries, which include things such as hotels, business and personnel supply services, fell 41,000 in September, the third decline in the last six months.
Because the nature of services is non-cyclical -- demand for health care and insurance is not dependent on the vagaries of the business cycle -- declines in this category are rare, even in recessions. Services jobs fell in only one month in the two recessions in the early 1980s and twice in early 1991.
Corporations, it seems, are finally biting the bullet.
"Plunging corporate profits meant corporations had to start firing," says Bob Barbera, chief economist at Hoenig & Co in Rye Brook, New York. "It was inevitable the second shoe had to fall."
It was one thing during the soft-landing phase, when output slowed, job growth decelerated and consumers were still spending, he says. "But when you have a bottom-line problem and no way to rescue your top line, the only solution is shed labor, which is 80 percent of the cost of goods sold."
Average hourly earnings rose 4.3 percent in the year ended September, matching the average increase for the last six months. From these data, it would seem that the bottom line is still under pressure. The good news, Barbera says, is that the events of Sept. 11 will accelerate the firing process, producing a dramatic decline in the short run but a better outlook over the horizon.
"With more Fed ease, more fiscal stimulus, the `V' is back," he said.
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