Layoffs will continue because the economy is in the process of reaching a new equilibrium based off of spending that is commensurate with income. Over the last several years, spending was greater than income due to the easy money from credit cards and home equity loans. Today the business models still reflect this old economy, and over the next twelve months, businesses will cut production to realign with the new reduced spending economy.
The first task businesses will focus on will be reducing inventory. This process of lowering inventory will lead to job losses. In addition to the job cuts from the inventory process, another wave of job cuts will occur due to the realignment of spending with income. The consumer makes up close to 70% of overall GDP, and thus, the economy will be weak for all of 2009. The fiscal stimulus plan should show positive effects later in 2009, but not enough to make up for the weak consumer. In addition to the weak consumer, the other components of GDP, investment and net exports, are still weakening. For all these reasons, the job market will be weak and job loss is inevitable.
