Alex Silverman of Great Neck, NY, who lost his job 14 months ago at WaMu Capital Corp., speaks with recruiter Julia Kaufmann-Yu. (Craig Ruttle / Associated Press / November 18, 2008)

Reporting from Washington - The bottom fell out of the job market last month, with businesses laying off a staggering 533,000 workers -- many more than even gloomy economists predicted. It was the worst one-month decline in more than 30 years, the government reported today.

And the bad news didn't stop there. The Labor Department also revised upward its previous estimates of jobs losses in the last two months to 403,000 in September and 320,000 in October.

Altogether, the economy has bled more than 1.2 million jobs in the last three months alone, and nearly 2 million since the start of the year. Normally, the economy has to create 100,000 jobs a month, or about 1.2 million a year, just to keep pace with population growth.

"This was much worse than was expected and represents wholesale capitulation," said Peter Morici, an economist at the University of Maryland. "The threat of a widespread depression is now real and present."

The unemployment rate also rose in November, although not as dramatically -- from 6.5% to 6.7%. Economists say that's because the Labor Department doesn't count "discouraged" workers, only those who are actively applying for new jobs.

Jared Bernstein, a labor economist at the Economic Policy Institute, said that when discouraged workers are added into the rate, along with people involuntarily working part-time, the unemployment rate rises to 12.5%.

"At this point, almost 20 million people are unemployed or underemployed," said Bernstein, who has been named economic advisor to incoming Vice President Joe Biden. "That's almost 1 out of 8 people in the labor force."

The economy officially entered a recession a year ago, economists say, but the downturn deepened sharply when financial markets crashed in September. Bernstein noted that from January to August, job cuts averaged 82,000 a month. Since September, the average has been 419,000 jobs a month.

For most of this year, the losses have been concentrated in the hard-hit manufacturing and construction sectors, but last month no part of the economy was spared. Even stores who normally add holiday workers this time of year appeared to hire fewer than they did last year.

"History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while," said Joshua Shapiro, chief U.S. economist at MFR Inc., a New York-based forecasting firm. "We expect labor market conditions to be dreadful for many months to come and consequently for consumer spending to continue to decline."

Joel Prakken, chairman of Macroeconomic Advisers, an economic research firm in St. Louis, Mo., said that recent data suggest that small and medium-sized business -- historically more reluctant to lay off trained employees -- have begun to bow to the economic pressure.

"The fact that you are now seeing job losses in small companies tells you that this has now spread well beyond the manufacturing and housing sectors," Prakken said.

Small businesses will often cut back workers' hours before laying them off, in part because it is harder for them to find and train new workers. That's one way that workers become "involuntary part-timers" -- their employer would rather reduce their hours from full-time to part-time than fire them outright.

"Small business owners are facing the grim reality that they're having to part with people they consider their extended family," said John Kabateck, executive director of the California chapter of the National Federation of Independent Business. "Unlike medium and large scale businesses, these are close-knit families. Telling an employee they have to leave is like evicting a close loved member of your family from your home. It's tough."

The only silver lining to the jobs report is that perhaps the steep job cuts will accelerate not only the downturn but the recovery, said Joel Naroff, president of Naroff Economic Associates in Holland, Pa.

Naroff said that the faster pace of technology and communications means that businesses appear to react more quickly now to bad economic news than they did in previous downturns. The first stage of adjustment is slowing production and reducing workers' hours; the second one is layoffs.

"We are heavily into the second stage of the adjustment process already," Naroff said. "In the past, the unemployment rate would rise well past a year or more of the end of a recession. Now we see businesses move immediately to cut out workers to reduce their costs so they can survive the recession."

"So, instead of a protracted period of moderate layoffs, it's possible we'll have a shorter period of very, very large layoffs," Naroff said.

In California, many small businesses are trying desperately to hang onto their close-knit group of employees, especially as the holidays creep closer.

Maria Sobrino, founder and CEO of Lulu's Dessert Corp. in Anaheim, said she's managed to avoid layoffs so far, but only by cutting many of her 60 employees' shifts from 10 to eight hours, opening four days a week instead of five, and eliminating an entire shift altogether.

Lulu's distributes baked goods to about 5,000 supermarkets in California, Nevada, Arizona and Texas, including Ralphs, Food4Less and Wal-Mart.

Sobrino said she may have to lay off workers in January if the holidays don't bring in enough business. "Sales are very soft right now," she said. "It'll depend on how the holidays go. Buyers are postponing their appointments until January. They don't want to see any new products until next year. I'm looking for a miracle to happen."

Spectrum Benefits Group, a Woodland Hills-based benefits consulting firm, works with about 200 small businesses, many of which have been contacting the agency for ways to cut back on benefits costs in order to avoid layoffs.

"The phone rings off the hook daily for this," said Vice President Marth Lugo-Aguayo. "Clients will call us saying they're going through layoffs. . . . we'll try to find them a different medical plan to save the company money so they can retain a couple more employees."

Reynolds is a reporter in our Washington bureau. Times staff writer Catherine Ho contributed to this report.

maura.reynolds@latimes.com

Layoffs expected to decimate Wall Street ranks

By STEVENSON JACOBS – 54 minutes ago

NEW YORK (AP) — The U.S. financial services industry is witnessing the bursting of yet another bubble. This time, it's the industry itself.

Bloated by years of frenzied growth, Wall Street banks and other firms are shedding tens of thousands of jobs and slashing entire divisions in their most drastic downsizing since the Great Depression. The moves promise to upend financial services and investment options for Americans from Wall Street to Main Street.

Those layoffs will drain New York and other cities of vital tax dollars while swelling the fast-growing ranks of the nation's unemployed. U.S. employers cut 533,000 jobs in November — the most in 34 years — including 32,000 in the financial-services sector, the government said Friday.

Saddled with heavy losses and a shriveled stock price, Citigroup Inc. last month said it would eliminate 53,000 jobs, the second-largest job cut by a U.S. company on record. Other firms plan to drop the ax on tens of thousands more, especially in areas that specialize in the risky investment products that helped ignite the financial meltdown.

"I think it's pretty clear that the whole financial sector is going to be smaller than it was," said Kevin Logan, chief U.S. economist at investment bank Dresdner Kleinwort. "It's not going to just consolidate; it's going to shrink."

Whether the bloodletting brings permanent changes to the economy is a matter of debate. But consumers will be deeply affected regardless. A leaner financial sector should lead to simpler, safer investment options as Wall Street reduces risk. But a smaller, more conservative financial sector also means smaller, more conservative lending. And that would lead to less available credit.

"We're going back to the basics," said Robert Howell, a finance professor at Tuck School of Business at Dartmouth. "The financial system was behaving like a bunch of drunks, and now it's back to sobriety. Things got totally carried away."

Through October, 130,000 financial jobs had been eliminated throughout the industry this year, according to employment firm Challenger, Gray & Christmas.

The elimination of 53,000 jobs at Citigroup — part of a 20 percent downsizing at the firm — will raise the number to around 180,000. That would be the industry's biggest yearly contraction ever.

JPMorgan Chase & Co. is shedding 10 percent of workers at its investment bank, matching planned cuts at rivals Goldman Sachs Group Inc. and Morgan Stanley. State Street Corp. said it will cut 1,600 to 1,800 jobs, or 6 percent of the investment services company's global work force.

The credit crisis is partly to blame. But so is the sector's rampant overcapacity. The U.S. financial industry historically has roughly doubled in size during each major technological innovation — railroads in the late 1800s, autos in the 1920s and the tech boom of the 1990s, for example.

As the boom years faded and financing needs fell, the size of the financial industry contracted accordingly. But when the Internet bubble burst in 2000, the sector never stopped growing. Instead, it ballooned over the past eight years to around 10 percent of the U.S. economy, puzzling economists.

"There was no reason for the industry to grow as fast as it did," said Thomas Philippon, a finance professor at New York University who has studied the financial industry's growth cycles. "The fundamentals just weren't there."

His models predict the financial sector will shrink to around 7 percent of gross domestic product, shedding $100 billion in annual wage costs. That would be Wall Street's first contraction in GDP terms since 1933, according to Philippon.

The pullback comes at a heavy cost. New York state Comptroller Thomas DiNapoli has said that over the next two years, the financial crisis could cost the state and New York City 225,000 private-sector jobs and the state and city $6.5 billion in tax revenue from the securities industry.

For financial workers caught in the whirlwind, anxiety runs high.

"Everybody's talking about it, of course," said Oliver Bouchard, a New York-based technology specialist for Citigroup, whose stock dipped below $4 last month, before federal regulators unveiled a plan to guarantee hundreds of billions of dollars in possible losses by Citi and inject more money into the struggling bank. "People are fearful for their jobs."

Bouchard, speaking for himself and not his employer, doesn't think he'll be among those laid off but said "nobody at this moment knows what's going on."

"Everybody hopes that it will just resolve itself," Bouchard said.

So where will the next round of layoffs hit the hardest?

The sectors of the industry that deal with mortgage mortgage-related asset-backed securities and other risky investments are expected to be among the most battered. The subprime fiasco has left investors wary of holding such investments. As a result, many financial firms have closed mortgage-related divisions. Experts expect that trend to accelerate next year.

"Any sector related to mortgages will contract significantly, probably by as much as half," said Sung Won Sohn, an economics professor at California State University, Channel Islands. "Many of those people simply aren't going to be needed."

Another group whose ranks are being thinned are financial engineers. Those are the math whizzes, lured from top schools to build complex computer trading models at hedge funds and big Wall Street firms. The so-called "quants" have been blamed for underestimating the risks of mortgage-related securities, derivatives and other exotic assets that helped trigger the financial crisis.

Many already have been let go. And firms say few will be replaced any time soon. That somber reality cast a pall over a financial engineering career fair at New York University this month. The annual event used to attract all the big names on Wall Street; this year, there were numerous cancellations.

"They said, 'Look, we're not hiring right now,'" said Steven Allen, board member of the International Association of Financial Engineers, which co-sponsored the event. "This was the first year you felt that people think it's worse than it was. There are jobs, but it's going to be much harder."

One prospective quant faced with dwindling job prospects is Zaw Myo Thant, who is pursuing a master's in financial engineering at NYU's Polytechnic Institute. He described the mood among his classmates as "pretty grim."

"Most students are already having difficulties finding an intern position, let alone full-time positions," said Thant, 32.

Amid the gloom, there could be a silver lining, at least for consumers. Fewer high-risk assets being traded should provide a more orderly marketplace. Ideally, that would safeguard against further market spasms like those that have wiped out billions in investors' retirement savings and other holdings.

"We can't have Wall Street producing defective products again," said Edward Yardeni, an independent market analyst. "They don't necessarily kill, but they do a lot of damage."

He said the industry will likely go back to the basics of the capital markets — "stocks, bonds ... things normal people can understand."

Yet if banks remain stingy with their money, the credit pinch that has squeezed consumers and small businesses in need of loans could worsen.

"Banks won't be lending as much, and that's going to cause some pain," said Howell of Dartmouth's Tuck School of Business.

Opinion is mixed, though, on whether a slimmed-down financial industry will really become more prudent or whether the pursuit of profits will inevitably restore the kind of freewheeling days the led to the meltdown.

Much will depend on what new regulations stem from the crisis, NYU's Philippon said.

Some lawmakers have called for tighter limits on how much leverage financial firms can assume, among other restrictions. Free-market advocates, though, warn that burdensome rules could stifle innovation and undercut the industry.

"My best guess is that the U.S. economy remains vibrant and efficient," Philippon said. But the shape and scope of any new regulation "will be the biggest factor" for the financial sector's future success.

"That's going to determine whether it's a dynamic sector or a dead one," he said.

Copyright © 2008 The Associated Press. All rights reserved.

Too many NY taxi drivers, not enough cabs for them

1 day ago

NEW YORK (AP) — Many of the thousands of New Yorkers laid off in the financial crisis have turned to driving taxis, but now there are too many drivers and not enough cabs.

Garage owners say they're turning away drivers. Harlem Yellow Cab manager Syed Zahoori says on every shift people get sent home without cabs.

City officials say the number of hack licenses is at an all-time high of nearly 46,000. The number of new licenses is up 19 percent over the last three months compared with the same period last year.

There are about 13,000 taxis.

Taxi and Limousine Commission Chairman Matthew Daus says there's always an influx of drivers when the economy is bad but this period "appears to be setting some records."