Even if your job is safe, problems in housing, Wall Street and the auto sector hint at widespread pain and a deeper downturn ahead.
By Chris Isidore, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- You may think your job is safe. But you still may not be spared the pain resulting from the weak labor market.
The loss of nearly a quarter-million jobs so far this year and a jump in the unemployment rate means the debate over whether there is a recession is pretty much over.
"There is a recession. The question now is how deep and how long," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. And he thinks the economy could get worse.
Here's a look at how a deteriorating job market could lead to a worse recession than many are predicting.
Less money in workers' pockets
First of all, a weak labor market could lead to smaller wage increases for workers in all types of industries, as employers get more conservative.
A recent survey by human resources consulting firm Mercer found that 6% of U.S. employers are already trimming their compensation budgets and another 10% are considering cuts.
But the real problem for workers is that slim salary increases may not keep up with inflation, especially with food and energy prices soaring.
From November through February, average hourly wages have fallen compared to a year earlier, when adjusted for inflation, and the modest gain in wages reported for March will likely be wiped out by price gains when the Consumer Price Index is reported later this month.
Inflation pressures could intensify further if the Federal Reserve continues to slash rates in an effort to spur the economy. That's because the Fed's rate cuts have been one factor behind the weak dollar.
A weaker dollar means higher prices for imported goods, especially commodities like oil. The record high for gasoline and the record lows for the dollar are not a coincidence.
Ashraf Laidi, chief foreign exchange strategist for CMC Markets US, said the dollar could lose another 5 percent this year versus both the dollar and the yen as the economy continues to slow. He thinks it will be "difficult for the dollar to make any recovery" if the Fed keeps cutting rates.
Deeper problem for troubled sectors
It now appears the recession started late last year. But the labor market was the one bright spot for much of 2007. Now, a rising unemployment rate has the potential to further dent consumer confidence and put a crimp in spending.
"As long as the unemployment rate was low, people had the sense they could continue to spend and count on improving income," said Bernard Baumohl, executive director of The Economic Outlook Group, a Princeton, N.J. economic research firm. "That has all dramatically changed since the summer of 2007."
An even bigger fear is that the most troubled spots in the economy -- housing, Wall Street and the auto sector -- will suffer even more.
More home price declines
The housing market has already taken a major hit. And the plunge in home values, the worst since the Great Depression, happened even with the labor market being relatively healthy last year.
Normally, home sales and prices don't plunge unless there is weakness in the job market. Well, now there is. So that's another big concern for the already battered real estate market.
Some homeowners who lose their jobs may not be able to afford their mortgage payments because of a loss of income. That could force more people to sell at distressed prices, or have their homes go into foreclosure if they can't find a buyer.
And this could hurt you even if you have a safe job and home that's fully paid off since it may mean that your house will now be worth less than previously.
More shocks to Wall Street
The housing problems triggered a meltdown on Wall Street last year, the aftershocks of which are still being felt. When mortgage defaults and delinquencies on subprime mortgages started to rise, it caused big problems for securities backed by those riskier home loans.
But if more people who had conventional home loans find themselves out of work and have difficulty paying their mortgages, this could affect safer loans backed by government-sponsored mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500).
A rise in defaults in mortgages made to people with good credit, Fannie's and Freddie's bread and butter, would put more strain on their already stretched capital reserves.
In the worst case scenario, they might need their own government-sponsored rescue, said Dean Baker, co-director of the Center for Economic and Policy Research.
"Subprime loans went bad first but a lot of the prime loans will go bad as well," he said. "I would be surprised [Fannie and Freddie] don't need some help before this over."
What's more, Wall Street is awash in securities backed by other types of consumer debt, including car loans and credit card balances. If rising unemployment causes higher delinquencies with those types of loans, then there is a strong possibility of more unpleasant surprises ahead in the credit markets.
"I'll be surprised if we don't see another investment bank get itself into trouble," Baker said.
Auto woes: Not just Detroit any more
The auto industry was battered by high gas prices last year. Sales fell 2.5% in the U.S last year. This year started out even worse, with first quarter sales down 8% compared to a year ago.
And the weak economy is starting to hurt overseas automakers like Toyota Motor (TM), which also saw U.S. sales fall in the first quarter.
Automotive market research firm CNW reports that buyer traffic is sharply lower across the industry. According to the most recent report from CNW, floor traffic at dealerships plunged nearly 30% in the second half of March, the largest drop since the early 1990s.
If more people find themselves out of work, this trend is likely to continue. That could spell trouble for employees of leading Asian automakers, which now make about half the cars and trucks they sell in the U.S. at North American plants.
So far, many of these manufacturers have avoided the temporary shutdowns and closings common at GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler. But weak demand could lead to job cuts and reduced hours by the likes of Toyota, Honda and others.
And if that happens, this could be bad news for many companies that depend upon the auto industry, from parts makers to dealerships and even to media companies that depend on advertising from car companies.Simply put, fewer auto sales could lead to a deeper recession.