Posts Tagged ‘jobs’

Fritz Henderson, chief executive of General Motors (GM), has said that the company needs to get out of the bankruptcy court as soon as possible in order to prevent many of its suppliers from going out of business. “Many of GM’s suppliers are already in the midst of a severe liquidity crisis, which has only been exacerbated by the current shutdown of certain GM production facilities,” Henderson said.

At stake are thousands of jobs in supplier companies. GM has shut 11 of its plants for close to 3 weeks in order to cut production and slash inventory. GM filed for bankruptcy on June 1 and is awaiting court approval to sell its assets to a reorganized company. According to the Motor & Equipment Manufacturers Association, at least 15 auto parts suppliers including Visteon Corp, Metaldyne Corp and Noble International Ltd., have either filed for bankruptcy or had their assets seized by creditors in 2009. Henderson said the company’s plan to resume operations at some plants by July 13 could be hit if the court does not approve GM’s asset sale.

According to the Commerce Department, the nation’s gross domestic product contracted at a 5.5% annual rate in the first quarter of this year, as against 6.3% in the fourth quarter of last year. Economists believe that the economy is contracting at about 2% this quarter. “The economic data we’ve seen so far for the second quarter suggest the preliminary number for the second quarter will show a modest decline, maybe half the rate we saw in the first quarter,” said Gary Thayer, senior economist with Wells Fargo Advisors.

Despite the good news, economists are worried about unemployment not showing any signs of sustained reduction. This week, the Labor Department said jobless claims for last week jumped unexpectedly by 15,000 to a seasonally-adjusted total of 627,000. Continued claims, which denote the number of workers still on jobless rolls after an initial week of claims, rose 29,000 to 6.738 million in the week ended June 13, the latest period for which the data was published. “We still firmly believe that the underlying trends in claims is downwards, but it is slow and uneven,” says Ian Shepherdson, chief U.S. economist for High Frequency Economics.

The Commerce Department says personal income in May rose 1.4%, the biggest gain so far in the year. The rise in income didn’t translate fully into spending. Consumer spending rose only 0.3% in May, a rise for the first time in the last 3 months while savings rate jumped to 6.9%, the highest since December 1993. “Consumers are starting to return to malls to spend a little more as they think we’re through the worst,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.

Analysts believe a sustained recovery in consumer spending is likely only after unemployment eases. “The recession is ending. Still, purchases are likely to be modest until the job losses ease and companies start hiring,” said Rupkey. Increasing job losses led to 0.1% drop in salaries in May. Retailers believe consumer spending will not rise to any significant extent in the near-term. David Dillon, Chief Executive Officer of Kroger Company, a grocery chain, said: “Shoppers remain cautious in this economy, and we do not anticipate that changing anytime soon.”

The government, through its $787 billion stimulus package, hopes to create more than 600,000 jobs. Federal agencies have injected billions into public works and other projects in an attempt to create employment. President Obama reiterated his commitment to stimulate the economy in a statement yesterday. “Surely and steadily, we will turn this economy around,” said Obama. Unemployment has reached a 25-year high and hundreds of thousands of Americans are losing jobs each month. Skeptics are questioning whether the stimulus package, which was approved for funding in February, has been effective. Senate Minority Leader Mitch McConnell says, “I think the economy is just as likely to begin to recover on its own, wholly aside from this, before much of this has an impact. So I’m very skeptical that this massive sort of spending binge that we’ve engaged in is going to have much of an impact.” David Axelrod, an adviser to President Obama, argues that the drop in job cuts in May is a si gn of effectiveness of the stimulus program. “It feels as if we’re moving and the stimulus package now is not nearly done, it’s just really at its beginnings,” said Axelrod.