Probable Record Jobless Rate Due to Foreclosure Properties

by Donald Hanz on Foreclosure Crisis

The jobless rate in April probably soared to its highest level in 25 years due to the continuing effects of bank foreclosed properties, according to a survey by Bloomberg News.

In April, the jobless rate increased from 8.5 percent in March to 8.9 percent. More than 600,000 workers lost their jobs in April, marking the fifth consecutive month of job losses. The exact figures would be released by the Labor Department on May 8.

Because of the soaring jobless rate, economists contend that the labor sector will have a hard time recovering even after the housing market battered by foreclosure properties has recovered.

Analysts say business enterprises will keep firing employees to cut expenses and push up drowning profits. Even if the problem of foreclosure properties is resolved and the economy stars to recover, job losses and clipped paychecks will slow down expansion.

Michael Gregory, a top economist at Toronto-based BMO Capital Markets, predicted the recession will end in 2009, but economic recovery will be slow and the reduction of jobless Americans will take a longer time. The claws of foreclosure properties have cut holes in the economy that are difficult to patch up.

In April, about 600,000 workers lost their jobs, putting the total number of laid off workers to 5.7 million since December 2007, the month economists identified as the start of the recession. The 5.7-million figure is the highest number of jobless Americans in a recession after the Second World War.

Gregory said job losses will continue to restrict consumer spending, although it increased a bit in April, until the losses slow down. He estimated the jobless rate will further increase to 9.5 percent at the end of December and then level off in 2010 at about 9.7 percent.

Meanwhile, gross domestic product fell at an adjusted yearly rate of 6.1 percent in the first quarter from the 6.3 percent adjusted yearly rate in last year’s fourth quarter.

One positive sign is a rise in consumer spending in April, ending its biggest fall since 1980.

Even so, economists interviewed by Bloomberg predicted that consumer spending will again fall this quarter because of the layoffs and the bleak effects of foreclosure properties, but will show some progress in the last two quarters.

Bloomberg analysts also expect the National Association of Realtors to report that the number of buyers of existing homes in March, including foreclosure properties, is largely unchanged.