Job losses compounded failures on Wall Street

  • Follow Business

How did it get this bad?

Storm clouds gather over the vacant DeMartini Recreational Vehicle dealership in Elkhart County, Ind. The county has seen the deepest decline for counties larger than 25,000 residents. Its unemployment rate went from 4.7 percent at the start of the recession to 18.8 percent in March.  Associated Press
Associated Press
Storm clouds gather over the vacant DeMartini Recreational Vehicle dealership in Elkhart County, Ind. The county has seen the deepest decline for counties larger than 25,000 residents. Its unemployment rate went from 4.7 percent at the start of the recession to 18.8 percent in March.

For two years, economic turmoil in the United States was isolated.

Even the deflating housing bubble was confined mostly to areas such as California's inland valleys, Las Vegas and Florida, while manufacturing communities in Michigan and the South struggled to keep workers in their jobs. The economy was hurting, but it didn't demand a nationwide lifestyle adjustment.

Then came the autumn of 2008. Banks failed, Congress poured billions into hopeful fixes, the Dow Jones Industrial Average plummeted, and soon the regional misery exploded nationwide.

"It was a major turning point, last October and November," said Jackie Knafel, the auditor of Noble County, a manufacturing community in northern Indiana where the unemployment rate went from 9.5 percent last October to 17.5 percent in March.

"Before last fall, you heard about people being laid off ... but you didn't hear about plants closing ... Now it seems really to have affected everything."

By the end of the holiday season, the infection had spread far beyond Wall Street. It continued into 2009, but the pace seemed to slow a bit in March.

BY NOW, the back story is well known. Beneath the distractions -- robust housing prices, a Dow racing toward 14,000, two wars and a White House campaign -- lurked reckless investments, consumer debt, record oil prices, excessive growth, soaring medical costs and millions of uninsured Americans.

Then, in just a matter of weeks, the Dow lost 25 percent of its value and credit markets were paralyzed.

Mark Vitner, the senior economist at Wachovia Corp., likened the economy to a car speeding along a foggy road. The collapse of Lehman Brothers in September sent the car off the side of the road and through the guardrail.

"We are now hitting the treetops," Mr. Vitner said, meaning the pace of decline has slowed.

THE AP ECONOMIC Stress Index uses unemployment, bankruptcy and foreclosure rates from each U.S. county to calculate the economic impact of the recession on a scale of 1 to 100.

In September 2008, 61/2 percent of the more than 3,000 U.S. counties had an index score higher than 10. The stress seemed to reach a peak in February, when almost 40 percent of the nation's counties had an index number higher than 10. It dipped slightly in March to 38 percent.

Since the start of the recession in December 2007, Indiana's Elkhart County saw the greatest reversal in fortune for counties larger than 25,000 residents, going from an index score of 6 in December 2007 to a score of 21 in March 2009. The county's unemployment rate went from 4.7 percent at the start of the recession to 18.8 percent in March.

Imperial County, Calif., has the highest index number for counties bigger than 25,000, with an index score of 28.1 in March.

Unemployment has deepened the slide. Among the first manufacturing jobs to go were those tied to the housing boom.

In Oregon's timber towns, which are dependent on the housing market, mills have been cutting shifts and workers in a desperate bid to slash costs. In March, the timber and wood products company Weyerhaeuser Co. shuttered its mill in Dallas, Ore.

"It's going to be devastating on the community," said Ed Trask, who worked at the mill for more than four decades. "What's going to happen?"

Mr. Trask paused, then answered: "It's going to be silence."

SINCE THE recession began, 5.1 million jobs have been lost, including 3.3 million since November. The jump in unemployment since the fall has also driven a fresh round of foreclosures.

Of the seven states that saw the fastest rise in unemployment rates between August and December, five also saw mortgage delinquency rates rise more 20 percent or more, including Maine, Washington and Oregon. The only two that didn't -- Michigan and Indiana -- already had some of the highest delinquency rates.

The Pacific Northwest and the South saw the highest jump in foreclosure activity from the third quarter of 2008 to the first quarter of this year.

Mr. Vitner said he thinks foreclosures connected to the subprime lending crisis are cresting. But he expects a second wave linked to unemployment to crest next year. This is because foreclosure filings often come several months after a borrower's first missed payment, and because of a range of efforts to halt foreclosures, many filings have been delayed.

"There's a good chance that we don't see the end of the credit issues in the economy until sometime in 2011 or early in 2012," Mr. Vitner said.

Comments (1) Add comment
ADVISORY: Users are solely responsible for opinions they post here and for following agreed-upon rules of civility. Posts and comments do not reflect the views of this site. Posts and comments are automatically checked for inappropriate language, but readers might find some comments offensive or inaccurate. If you believe a comment violates our rules, click the "Flag as offensive" link below the comment.
patriciathomas
42
Points
patriciathomas 05/18/09 - 05:28 am
0
0
Had the government not sunk

Had the government not sunk trillions in taxpayer money into their preferred investments, the foreclosures would have been complete by now. Business that relied on government guarantees for their investments would have folded and new businesses would be replacing them. Instead, with the continued interference in business by the federal government, the death throes continue to drag on for two or three more years. The trillions in "stimulus" will buy a lot of votes, but we won't see an improvement in the economy until we some major replacements in D.C.

Back to Top

Top headlines

Paine plans furloughs, salary cuts, layoffs

Paine College President George C. Bradley on Friday announced the college will implement furlough days, salary reductions and layoffs to save $2.4 million over the next fiscal year.
Search Augusta jobs