US job losses hold back consumer spending

SOURCE: WWW.CHARTOFTHEDAY.COMUS jobs Feb10.gifUS consumers were responsible for 16% of total world GDP in 2008. But their spending is taking a battering from the combination of high unemployment and high oil prices. Both are reducing end-user demand for chemical products.

New government estimates suggest US employment has fallen by 8.4m jobs since the downturn started in December 2007. Total unemployment was 1.4m higher in December 2009 than previously reported.

These are staggeringly bad figures, particularly when one considers the major financial stimulus programmes that were put in place in early 2009. And as the chart shows, from ChartoftheDay, job losses in this downturn are far worse than the average during recessions. They are 3 times worse than the average loss (blue line).

Equally, downturns between 1950-2000 had typically already begun to actually add new jobs again, and had already recouped all the jobs that had been lost. This is a major contrast with today (red line), where the most optimistic interpretation is that the job loss total may have peaked.

Sadly, this was all predictable, although politicians seem to have preferred to ignore the evidence. Back in December 2008, the blog noted detailed Bank of England analysis of 33 banking crises between 1977-2002 which concluded:

• The average length of each crisis was 4.3 years
• The median loss of GDP was 7.1%
• Major crises (such as today’s) caused GDP losses of at least 10%.
• GDP losses can double if the banking crisis leads to a currency crisis

And their forecast of the likely course of today’s crisis still seems valid:

Governments have initially found it easy to borrow, but now face the risk of a currency crisis if foreign lenders begin to suspect they will never be able to repay the money borrowed.
Companies continue to find it more difficult to borrow, as banks “de-risk” their balance sheets.
Consumers face an increased risk of unemployment, and are tending to save more, thus further reducing demand.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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