Rate of Job Losses Slows, But For How Long?

This morning, the Department of Labor, Bureau of Labor Statistics, in a preliminary estimate, reported that US nonfarm payroll employment fell by 345,000 in the month of May. This report marked the most substantial departure from the rapidly accelerating decline in payrolls that has transpired in each month since the collapse of Lehman Brothers. Economists and analysts, understandably focused on the deciphering of trends, will be sure to note that while the US economy is still losing jobs, it is no longer losing jobs at an increasing rate. (Calculus geeks might note that while the second derivative "flatlined" several months ago, this month's data marks the first time that the anticipated change in the first derivative has occurred). Considering this positive development, we find it ironic that the major job loss inflection points have been marked by the bankruptcy of a major US corporation. We wonder then, to what degree will the collapse of GM continue to affect the labor markets?

There are numerous and obvious distinguishing factors between the Lehman Brothers and GM bankruptcies:

• The Government is holding GM's hand through the bankruptcy process.
• GM will restructure, and emerge as a leaner entity.
• The Lehman collapse put the entire financial system at risk.
• The Lehman collapse caused the failure of a multi-billion dollar Money Market Fund
• and the list goes on (further than we care to take it)

Due to the obvious differentiating factors between these two embarassing chapters in US corporate history, it at least appears that the immediate and severe fallout witnessed in the Lehman debacle will not repeat itself in the wake of GM's failure.

We are sure that, somewhere, an economist has attempted to calculate the overral effect that the GM bankruptcy will have on the labor market. While such an analysis might be useful from an academic perspective, we are of the opinion that the downsizing of GM will bring with it a multitude of incalculable shock waves. The two that come to mind are 1) How will the bankruptcy affect the general attitudes of prospective car buyers? and 2) Will car dealers anticipate a subsequent round of dealership closings, and how will they respond to this perceived threat? These are both highly unknown variables that will largely determine the labor market fallout that results from the downsizing/bankruptcy of GM. We will not pretend to be able to calculate the impact.

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