There’s now no doubt the US economy is turning lower with the sliding jobs and car markets the new areas of concern. Some US commentators are even comparing the once mighty American car industry’s woes to those of the shattered banking and housing sectors.
The jobs market is starting to catch up with the problems in the wider economy, despite some commentators claiming that the losses last month were not as bad as forecast. They are in fact worse as employers cut working hours, working days and wages: with the average US working week last month the shortest since record started in 1964.
America must create 115,000 jobs a month merely to keep pace with population growth in the country. So far this year it’s fallen short every month, and even though the July loss of 51,000 jobs was said to be “better” than the forecast loss of 70,000 jobs for the month.
The US workforce has grown by 1.4 million people in the past year, but employment has dropped by more than 200, 0000: 76,000 jobs were lost in the private sector and 25,000 created in various levels of government. That’s not encouraging, nor was the revision of May and June job loss figures with 26,000 fewer jobs lost in those months
But more worrying was the growth in the ranks of part time people as companies have cut hours and working weeks. Some economists say there are an extra 1.4 million people doing part time in the US now than there were a year ago. Cuts in the number of hours
The average working week last month fell from 33.7 hours to 33.6 hours. Average hourly earnings rose at annual rate of 3.4%, failing to reverse the gradual decline over the past year and still less than the current inflation rate of 5%.
Some economists now say the US economy will grow at less than 1% this quarter.
The sagging US car industry will not arrest the slide in the economy. The outlook is getting gloomier as high oil and petrol prices and plunging sales wreak havoc on the sales, earnings and financial strength of the likes of General Motors, Ford, Chrysler, Mercedes, BMW, Nissan and Toyota.
Sales in July fell more sharply than expected, and car leasing losses are ballooning as a result and hurting the finances of all companies, with BMW especially hurt, along with Ford, GM, Mercedes, Nissan, Toyota and Chrysler. All up GM, Ford, Nissan, Chrysler and BMW this year have set aside an estimated $US10 billion to cover losses and provisions for the drop in resale values for car leases and the higher depreciation rates now needed.
Overall, US car sales dropped 13% in July from the same month of 2007: they also fell 4% from the already depressed June. According to industry figures, that made July the worst month for the industry in 16 years.
But the big surprise was BMW’s second bout of bad news from the US with it being forced to put away hundreds of millions of dollars more in provisions for losses on car leases and the drop in the second-hand car market. It saw earnings drop 58% before interest and tax. So bad was the result that BMW has abandoned its 2008 profit forecast.
BMW actually had a small rise in US sales in July, as did Mercedes, which last week warned of an 11%, 700 million euro drop in gross earnings this financial year (but those sales would have been loss-makers given the weakness of the US dollar and the rising cost of car leases going bad in America).
Ratings agency Standard & Poor’s lowered US car company ratings last week, with GM’s credit rating cut to six notches below investment-grade. It’s no wonder.