Even though the four-week moving average of Americans filing for unemployment dropped slightly this week, it clear that the labor market is still weak. Laid-off workers are finding it more difficult to get new jobs. For the past three weeks, the number of unemployed Americans continuing to file for benefits has hovered near 3 million. The last time it reached that level was in the aftermath of the last US recession, in November 1992.
This news should be a flashing warning light. Wall Street has been hoping for signs of an economic recovery. But investors should realize that this slowdown has much further to go. With millions of Americans remaining unemployed, consumer spending is sure to plunge. That, in turn, will send already-declining company earnings into a nosedive.
Moreover, companies that have laid off workers to stay afloat have also cut capital spending on such items as new computers and equipment that enhance productivity. Without the manpower and new technology improvements, companies are facing a long, slow recovery period.
