Dismal economic news — and it's certain to get worse

McClatchy NewspapersNovember 7, 2008 

WASHINGTON — Coming on the heels of awful business and economic-growth reports, Friday's dismal news that the unemployment rate rose to 6.5 percent and employers shed another 240,000 jobs in October made it clear that the U.S. economy is now in recession.

The Bush administration and even Federal Reserve Chairman Ben Bernanke have been reluctant to use the "R" word, but few economists dispute that the world's largest economy is officially there.

"I think it's awfully hard to say you're not in a recession at this point. Ten consecutive drops in payrolls, I think any way you look at it is a recession," said David Wyss, chief economist for the New York rating agency Standard & Poor's.

Friday's dismal jobs report followed word last week that the economy had contracted 0.3 percent in the third quarter. A recession generally is defined as two consecutive quarters of economic contraction, and there's little dispute that the last three months of 2008 will be terrible for the economy.

Other indicators include car sales. Carmakers such as General Motors reported a 45 percent drop in sales in October, and measures of consumer confidence last month hit all-time lows. With 10.1 million people now unemployed, consumption, which drives more than two-thirds of U.S. economy activity, is sure to take an even greater hit.

"Employment has fallen by 1.2 million in the first 10 months of 2008; over half of the decrease has occurred in the past three months," the Bureau of Labor Statistics report says. "In October, job losses continued in manufacturing, construction and several service-providing industries."

Not only were the October job losses higher than anticipated, Labor Department statisticians sharply revised September's jobless figures.

Statisticians acknowledged that the preliminary estimate of 159,000 jobs lost that month was far off, and that there were instead 284,000 workers tossed into the ranks of the unemployed. They also revised August jobless numbers from the estimate of 73,000 to 127,000.

These revisions are significant because they suggest that the economy was suffering a steep drop even before the financial crisis exploded into a global problem in mid-September. Many of the September job losses preceded the financial meltdown.

A good chunk of the revisions reflected changes in jobs for teachers and school employees, a statistic that state and municipal governments compile and report with a lag. Another part of the revision reflected greater layoffs from small employers, who weren't captured in the broad employer sample. These small-company jobs often show up in revisions once statisticians have seen payroll and unemployment insurance information from state governments.

"It suggests that small firms did worse than expected," Wyss said.

October's job losses were across virtually all sectors of the economy.

Manufacturing employment dropped by 90,000 jobs. Construction fell by 49,000 jobs, and by 663,000 since its peak in employment in September 2006. Professional and business services shed 51,000 jobs, retail employment fell by 38,000 posts and financial services trimmed another 24,000 jobs in October. Only the health-care and mining sectors added to payrolls, 26,000 and 7,000 jobs respectively.

Most mainstream economists had forecast job losses of around 200,000 and a jump in the unemployment rate to 6.3 percent after September's 6.1 percent.

The grim jobs report gives new impetus to a plan by the Democrats who control Congress to pass some sort of stimulus package when they meet in a lame-duck session beginning Nov. 17.

In his first news conference as president-elect, Barack Obama said Friday in Chicago that he'd like a stimulus plan passed quickly and that it should focus on extending unemployment benefits, aiding the vital automotive sector and creating jobs quickly.

"I want to see a stimulus package sooner rather than later. If it does not get done in the lame-duck session, it will be the first thing I get done as president of the United States," he said.

President Bush neither endorsed nor quashed the idea of another stimulus on Friday.

"In the weeks ahead, my administration will continue working to return our economy to the path of prosperity and growth," Bush said.

His commerce secretary was more skeptical.

"Some of the projects we're hearing about may be good projects but may not be of immediate impact. We would have to look at it in the context of what the vehicle is and how they are thinking about doing it," Carlos Gutierrez said in an interview.

Many analysts fear that the unemployment rate could get above 8 percent next year, meaning Obama would inherit an even bigger economic crisis than he expected.

"We are on track for the longest and deepest recession of the postwar era, and policy will go all out to try to mitigate it," said John Ryding and Conrad DeQuadros, partners in the economic research firm RDQ Economics in New York.

The two analysts, in a research note, expect the Federal Reserve to take its benchmark federal funds rate below where it stands now at 1 percent and into record low territory in a bid to spark the economy. They call on Obama to work with Congress to pass a jobs-oriented economic stimulus package quickly.

"Dear President-elect Obama: The honeymoon is over and we await your economics transition team with great interest," the pair wrote.

Obama met with that team in Chicago on Friday afternoon and, despite the clamor for a quick pick for treasury secretary, he cautioned that it would take a few weeks to ensure that he makes the right choice.

A closer look at October's numbers shows that the long-term unemployed — those who've been jobless for 27 weeks or more — grew by another 249,000 to 2.3 million. They accounted for 22.3 percent of total unemployment; more than one in five unemployed workers has been without a job for half a year or more.

"These workers are front-line casualties of the unrelenting economic crisis. Already, more than 800,000 have exhausted their emergency federal benefits, and more than 1 million will do so by the end of the year," said Christine Owens, the executive director of the National Employment Law Project, an advocacy group that's arguing for extending and expanding unemployment benefits.

The number of newly unemployed — those without jobs for five weeks or less — rose by 212,000 to 3.1 million in October, the Labor Department said.

The number of people who are working part time because they can't find full-time jobs rose by 645,000 to 6.7 million in October. That number has grown by 2.3 million over the past 12 months.

ON THE WEB:

The Labor Department report

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