According to the Bureau of Labor Statistics, U.S. employers cut a total of 533,000 jobs in November. This is the largest single-month drop since December 1974 and brings the total number of jobs lost since the beginning of the recession to 1.9 million.

This historic jump in unemployment adds more evidence that the U.S. economy could be entering into a deflationary spiral. Deflation is defined as a contraction in the money and credit supply compared to available goods.

In a deflationary spiral, a reduction in consumer spending forces businesses to cut prices in order to shift goods and services. With reduced sales margins, businesses are forced to cut overheads, including jobs. Without jobs, consumers aren’t able to spend and businesses are forced to reduce prices to stimulate demand…and so on.

The flailing auto industry is an examples of a deflationary spiral within a single industry.  As consumers reign in spending – partly because of the real estate dabacle – auto manufactuers have experienced a drop in sales.

“Overall industry sales dropped 35% in November. Ford actually beat the industry, reporting a sales drop of 30% but GM reported a 41% drop and Chrysler’s fell 42%. Nissan’s sales dropped 44%, Toyota fell 35% and Honda fell a similar amount. “We cannot continue to operate at these levels or the entire industry is going to go down,” said Mike DiGiovanni, GM’s director of market analysis, who acknowledged the steep drop in sales in October and November was devastating to the company’s finances.” – Time Magazine

This drop in sales is forcing auto manufacturers and suppliers to lay off workers. To date, GM has laid off 11,000 workers in 2008.  Suppliers have also had to cut their workforce.

“The ripple effect of plunging auto sales is washing over suppliers, forcing Gentex Corp. on Friday to announce the first permanent layoffs in its 34-year history.

Between 350 and 400 hourly and salaried workers were told Friday their jobs were gone.” – Grand Rapids Press.

The increase in auto unemployment has impacted local spending in Michigan. 

“A Nielsen survey of 21,000 U.S. households showed 35 percent plan to spend less this year compared to last year. Lower-income households are greatly reducing their holiday spending, and so are high-income households.

“We know customers are definitely looking to make their dollars go farther. There are a lot of ‘needs vs. wants’ and we’re seeing more spending power around paydays,” said Frank J. Guglielmi, director of public relations for the Grand Rapids-based Meijer discount chain which has two stores in Jackson.” – Citizen Patriot