Fears of a million layoffs a month in corporate America

Yesterday we linked to the Conference Board's estimate of three million lost jobs in "Bracing For Another 1.1 Million Job Losses. And: Possible BOHICA Alert Ahead". Today The Guardian brings us GFC Economics' estimate:

As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis.

November was the worst month in the US labour market since the oil crisis of 1974, as more than 500,000 US workers were laid off, according to official figures released on Friday.

But Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression.

Corporate bond yields have rocketed since the credit crisis began as investors flee risky assets in search of safe havens such as US Treasuries. That effectively means many firms are being forced to pay eye-watering interest rates to borrow funds.

Turner says when the gap between the yield on high-risk company bonds and US Treasuries widens sharply, unemployment tends to shoot up - and current credit conditions are pointing to a doubling in the pace of layoffs, to more than a million workers a month, by spring....MORE

I learned, years ago, that we ignore the signals from the credit markets at our peril. Here's my comment at MarketBeat last week:

The most amazing thing about the reaction of equity market participants has been how slow-motion the reaction has been.
In this day and age, where hedgies and primes factor in geographic distance to shave a couple nanoseconds on execution time, the response to credit market distress, starting in Aug. ‘07 and disseminated to the public at MarketBeat and via other platforms, has been glacial.

With that in mind we’re probably looking at a “Happy Days are Here Again” rally that will be just long enough to suck the sideline dollars in, followed by a depressive “We’re screwed, the economy is worse than we ever thought” final decline of this cyclical bear.
Unfortunately we’ve got another 7-10 years of secular bear. To quote myself (and Warren):

“Folks had better come to grips with the fact that coming out of a cyclical bear still leaves us in the secular variety.

To quote Warren Buffett:

“Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move.”
-Warren Buffett

December 31, 1964: DJIA 874.12
December 31, 1981: DJIA 875.00
That’s a secular bear market. “

Comment by Climateer - December 3, 2008 at 1:28 pm