Jobless numbers soared in January at worst rate since '74

McClatchy NewspapersFebruary 6, 2009 

WASHINGTON — Worse-than-expected January job losses announced by the government Friday put pressure on the Obama administration and Congress to pass economic stimulus legislation quickly and move on to tackle the banking and housing crises, which are fueling the rapidly worsening contraction of the nation's economy.

Employers shed 598,000 jobs in January, the Labor Department said, the worst monthly showing since 1974. The unemployment rate in January rose four-tenths of a percentage point from December to 7.6 percent as businesses sent workers packing in virtually all sectors of the economy. Roughly 1.6 million Americans are now officially unemployed.

Government and health care were the only sectors that added any substantial number of jobs, 22,000 and 19,000 positions, respectively. Since the recession began in December 2007, the U.S. economy has lost about 3.6 million jobs. Almost half of them were shed over the past three months, and about three-quarters in the past five months.

"This is the largest 13-month job loss since the payroll employment series began in 1939," Christina Romer, the head of the White House Council of Economic Advisers, said in a statement. "These numbers, and the very real suffering of American workers they represent, reinforce the need for bold fiscal action. If we fail to act, we are likely to lose millions more jobs and the unemployment rate could reach double digits."

Independent analysts emphasized that almost no economic sector was spared, and that underscores a sense of hopelessness for the newly unemployed.

"The breadth of the job declines across industries, occupations and regions is unprecedented. If one loses their job, it's not clear what to do," said Mark Zandi, the chief economist for forecaster Moody's Economy.com of West Chester, Pa. "This is one reason that confidence has been shattered."

Retailers on Thursday reported a fourth consecutive month of downturn; only Wal-Mart posted a modest increase — suggesting that Americans are embracing frugality. All measures of consumer confidence are in the dumps.

Lost in the data is this important reality: The downturn is hitting older workers harder than past recessions did. The National Employment Law Project, which lobbies for stronger unemployment benefits, said workers 45 and older accounted for more than 31 percent of today's unemployed. In February 1981, in a period of similar contraction, that number stood at 15.5 percent of the unemployed.

Friday's job numbers also argue for bolder action to fix frozen credit markets and reverse a deep decline in home prices and rising foreclosures.

"The jobs numbers underscore we need both a fiscal stimulus and a financial market repair plan. Because if you do one without the other, you won't get the effect on the economy that you need," said Vincent Reinhart, a former top economist of the Federal Reserve's rate-setting Open Market Committee.

Treasury Secretary Timothy Geithner is scheduled to deliver a speech at noon Monday outlining his plan to restore financial stability and jump-start lending. He's widely expected to announce a menu of measures to address the banking sector and mortgage finance.

CNBC reported Friday evening that Geithner will call for a "bad bank" that buys up to $500 billion in bad assets from commercial banks. His plan also will inject an unspecified amount of capital into banks, beyond the $700 billion authorized last October in the Wall Street bailout plan, the business cable-TV channel said. Geithner will discuss mortgage finance later in the week, CNBC reported. Treasury officials didn't immediately respond to requests for confirmation.

In addition, the Federal Reserve announced Friday evening that it will provide loans worth up to $200 billion to qualified investors who hold pools of car loans, student loans, motorcycle loans, small business loans and credit card debt. The Treasury Department will also provide $20 billion in credit protection.

This effort aims to revive the secondary market for loans where investors purchase the securitized debt of American consumers. This market has gone dormant and the Fed is acting as a buyer of last resort, providing loans against these securities while they're parked at the Fed until the market revives.

All three efforts aim to get more capital into banks and other financial institutions. Given how poorly the original investments of $350 billion have been accounted for, asking Congress for more bailout money is a political nonstarter.

"The reason they don't do a front assault on the beach . . . is because they are afraid of going to Congress and asking for those overwhelming resources," said Reinhart, who's now a scholar at the American Enterprise Institute, a conservative research center. "If you were the secretary of the treasury, would you want to go to Congress with a top-line (request) bigger than the fiscal stimulus package? I think the answer is no, you don't."

In Friday's jobs report, declining sectors were led by manufacturing, which lost 207,000 jobs, the largest one-month drop since October 1982. Construction employment fell by 111,000 as commercial building continued to drop sharply. Retail employment fell by 45,000 jobs, transportation and warehousing 44,000 and financial services 42,000.

It's probably going to get worse. The Labor Department reported Thursday that claims for new unemployment benefits soared to 626,000 last week. That suggests that February's job numbers could be even worse than January's, the worst monthly performance since December 1974.

Financial markets shrugged off the dismal jobs numbers Friday, focusing instead on Monday's Geithner plan. The Dow Jones Industrial Average rose 217.52 points to 8280.59. The S&P rose 22.75 to close at 868.60 and the Nasdaq finished up 45.57 points to 1591.71.

As part of his multi-front effort to revive the economy, President Barack Obama also announced Friday the creation of an Economic Recovery Advisory Board, headed by former Federal Reserve Chairman Paul Volcker. It will provide Obama with an outside, independent voice on the state of the economy.

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