By Matthew Benjamin
Dec. 1 (Bloomberg) -- The U.S. once exported jobs. Now, it is exporting unemployment.
America’s deepening recession, which has cost 1.2 million jobs so far this year, is taking a heavy toll overseas. Shrinking consumer demand for imports and less need for outsourcing by U.S. companies are idling workers at Germany’s Porsche SE and Chinese businesses that make toys for Mattel Inc.
Economists say worldwide unemployment may increase to a two-decade high as trade and investment ties that have developed during 20 years of globalization magnify the impact of the U.S. contraction. Without buoyant economies elsewhere in the world to act as buffers, a longer, deeper slump in the labor market is likely.
“In the same way that we were supporting economic activity when we were growing rapidly, the recession in the U.S. is going to be a drag on the global economy and is going to reduce employment in our trading partners,” says Lewis Alexander, chief economist at Citigroup Inc. in New York.
The U.S. Department of Labor may report Dec. 5 that the jobless rate jumped in November to a 15-year high of 6.8 percent and employers reduced payrolls by 320,000, according to economists surveyed by Bloomberg News.
That would bring job losses for 2008 to 1.5 million. “Millions” more may follow in 2009 “if we do not act swiftly and act boldly,” President-elect Barack Obama said at a Nov. 24 press conference. He aims to create 2.5 million new jobs in his first two years in office.
Not Just U.S.
“This is by no means simply a U.S. story,” says David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York, who expects unemployment to increase in both developed and emerging-market nations.
Worldwide, the jobless rate may rise above 7 percent by 2010 after remaining between 5 percent and 7 percent for two decades, says Kathleen Stephansen, chief global economist for Credit Suisse Holdings USA Inc. in New York.
“The global pie is shrinking rapidly, and when that happens, there is simply not enough business to keep everyone employed,” she says.
Unemployment in Germany, the world’s largest exporter, may start to creep higher after declining for 32 consecutive months, the longest slide since reunification in 1990.
“Improvements in the German labor market will come to an end in 2009 at the latest,” Michael Huether, head of the Cologne-based Institut der Deutschen Wirtschaft, a business- sponsored economic institute, told reporters in Berlin Nov. 24.
German Job Losses
Germany’s BASF SE last month announced plans to idle 80 factories around the globe after customers in the auto, construction and textile industries reduced orders. The world’s largest chemical company, which gets a fifth of its revenue from North America, plans to eliminate more than 1,000 jobs and reduce work hours for 20,000 employees, about one-fifth of its labor force.
Heidelberger Druckmaschinen AG, the world’s largest printing-press maker, plans to cut as many as 2,500 jobs, or 13 percent of its workforce, to offset declining demand. The Heidelberg-based company gets about half its sales from outside Europe, including 16 percent from North America.
Volkswagen AG and Porsche said last week they are each temporarily suspending production at their largest plants in coming weeks. Porsche said in a Nov. 26 statement that sales of its trademark 911 sports car in the U.S., the model’s largest market, “can hardly be reliably calculated.”
Euro Region
Unemployment in the 15-nation euro region rose to 7.7 percent in October from a low of 7.2 percent in February. It will reach 8.3 percent next year, the International Monetary Fund forecasts.
The Organization for Economic Cooperation and Development, which includes the world’s richest economies, said in a report last week that it expects the number of people out of work in its 30 member nations will rise to 42 million in 2010 from 34 million now as “the financial turmoil that erupted in the United States” has “rapidly spread to the rest of the world.”
Europe and Japan “are at the beginning stages of what we think will be a severe labor-market adjustment,” says JPMorgan’s Hensley.
In Japan, the slump is hurting part-time and contract employees, a growing class of workers who don’t benefit from Japan’s lifetime-employment contracts.
Temporary Workers
Toyota Motor Corp. will cut half its 6,000 temporary workers by the end of March in response to the global decline, which drove U.S. sales for Asia’s largest auto company down 23 percent in October. Electronics-maker Sharp Corp. said last week it’s considering cutting temporary workers at a plant that makes parts for digital cameras and televisions.
Japan’s jobless rate will jump to 4.4 percent in 2009 from 4 percent, the OECD forecasts. Japanese unemployment peaked at 5.5 percent in 2003, when the country was emerging from its last recession.
Also feeling the fallout from the U.S. downturn are manufacturers in low-cost countries such as China, where American companies have turned for manufacturing.
“China’s economy has acutely felt the impact of the financial crisis,” Yin Weimin, head of the Ministry of Human Resources and Social Security, said on Nov 20. “Some enterprises, particularly labor-intensive small and medium-size enterprises, have gone bankrupt or partially shut down their production capacity and, as a result, many people have lost their jobs.”
Toy Exporters
Smart Union Group Holdings Ltd., a toymaker that supplies Mattel and Hasbro Inc., shut last month, putting 7,000 people in Dongguan, in Guangdong province, out of work. Half the nation’s toy exporters have closed this year, and 67,000 enterprises filed for bankruptcy in the first six months, according to government figures.
China’s urban unemployment may rise to 4.5 percent by the end of the year from about 4 percent now and “worsen” next year, according to Yin. The figure doesn’t measure job losses among an estimated 200 million migrant workers who have left their hometowns in the countryside to work in the cities.
“U.S. multinationals are facing harder times and scaling back production in the rest of the world, and at the same time there’s a straightforward contraction of imports into the U.S.,” says Marco Annunziata, chief economist at Unicredit MIB in London. “All this means more job losses, as we’re seeing a slowdown in U.S. growth that will impact everywhere.”
Not since the 1930s have unemployment and economic decline been more closely linked across international borders, says Nobel laureate economist Robert Solow, 84, a professor at the Massachusetts Institute of Technology in Cambridge.
“Normally, business cycles are not in synch around the world, and that helps keep them relatively mild,” he says. Now, “there’s a lot more synchronization, and that contributes to the likely depth of the recession.”
To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net
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