With 663,000 more jobs disappearing from the American economy last month, swelling the total number of jobs surrendered to the recession beyond five million, the government’s response to the downturn is being put to a strenuous test.
When drafting plans in January to spend roughly $800 billion to stimulate the deteriorating economy, the Obama administration operated on the assumption that the unemployment rate would reach 8.9 percent by the end of the year—without the extra federal spending. Three months into the year, the unemployment rate has already soared to 8.5 percent, from 7.6 percent, the highest level in more than a quarter-century.
Between January and March, more than two million jobs were lost, according to the Labor Department’s employment report, released Friday.
The severity and breadth of the job losses in March—which afflicted nearly every industry outside of health care—prompted economists to conclude that an agonizing plunge in employment prospects was still unfolding.
“It’s really just about as bad as can be imagined,” said Dean Baker, a director of the Center for Economic and Policy Research in Washington. “There’s just no way we’re anywhere near a bottom. We’ll be really lucky if we stop losing jobs by the end of the year.”
The pace of retrenchment has prompted talk that another wave of government stimulus spending may be needed to accompany the $787 billion already in the pipeline.
“We’re clearly looking at a worse downturn than they had been anticipating when they planned the stimulus,” said Mr. Baker, whose organization tends toward liberal policy prescriptions. “We’re going to need some more.”
But others—not least, decision-makers inside the Obama administration—deemed such talk premature. The dreadful jobs report landed among tentative signs of improvement in a few areas of the economy, with recent snippets of data lifting stock markets and sowing cautious hopes that the beginnings of a recovery might be taking shape.
After a miserable holiday season, retail sales appear to have stabilized. Auto sales, while extremely weak, improved slightly in February. Houses have been selling in markedly greater numbers in important markets like California and Florida, albeit at substantially reduced prices. Consumer spending appears to have leveled off after plummeting over the last three months of 2008.
“The downturn is still very intense, but it’s no longer intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com.
The surge of government spending is just beginning to work its way through federal and state bureaucracies and is expected to support jobs in construction and related industries later this year.
“We’re attacking this in a very aggressive way,” the labor secretary, Hilda L. Solis, said Friday in an interview, arguing that it was too early to consider another round of stimulus spending. “We will revisit that once we expend all the money that we have accrued.”
For now, the same factors that have assailed the economy for more than a year remain in force, with tattered banks reluctant to lend, and even healthy households and businesses averse to borrowing and investing in the face of grave uncertainty.
The very perception that millions more will lose jobs and housing prices will fall have turned such outlooks into reality: As businesses scramble to cut costs and confront gloomy sales prospects, many are shrinking their work forces, removing more paychecks from the economy.
“There’s a lot of survival job-cutting going on throughout American business,” said Stuart G. Hoffman, chief economist at PNC Financial Group in Pittsburgh. “There won’t be any job growth at all this year. The economy is far, far from being out of the woods.”
Still, Mr. Hoffman is inclined to wait a few months and hope for improvement before calling for a new wave of stimulus spending.
“You don’t just double the dose if the patient doesn’t immediately improve,” he said.
The Treasury recently outlined plans for an expanded bank rescue aimed at lowering borrowing costs for businesses and households. The Federal Reserve has begun buying $300 billion worth of long-term Treasury bonds in an effort to drive down the interest rates on mortgages, auto loans and other forms of finance.
The panic that has ruled financial markets since last fall has abated considerably in recent weeks. The average interest rate on a 30-year, fixed-rate mortgage dropped to a record low of 4.61 percent last week, according to the Mortgage Bankers Association, from more than 6 percent a year ago. Banks are charging each other less to borrow money. Investors are tiptoeing back into the market for corporate bonds.
“Credit markets have improved across the board,” said Michael Darda, chief economist at the research and trading firm MKM Partners. “We’re not going to see it in the economy for a while, and we’re not going to see it in the labor market for an even longer time, but in the financial market, indicators are starting to move in the right direction.”
Manufacturing remains exceedingly weak around the world, a response to plummeting demand for goods. Still, an index tracked by JPMorgan Chase that gauges global production has climbed for three consecutive months.
In London, leaders of the world’s major economies left a summit meeting this week with promises to try to bolster global trade.
But economic recovery will require incomes to improve, giving Americans the spending power to consume, thus creating jobs that generate more wages—an upward spiral. For now, that dynamic is working in reverse: during the first three months of the year, wages and salaries shrank at a 4 percent annual rate, which is on pace to eliminate some $265 billion from the economy, according David A. Rosenberg, an economist at Merrill Lynch.
“This prevalent view that the recession is about to bottom out has somehow bypassed the most important part of the economy, which is jobs and income,” Mr. Rosenberg wrote in a note to clients.
Friday’s report catalogued the myriad ways in which American working people remained under assault. The number of unemployed people rose to 13.2 million in March. Those unemployed for longer than six months reached 3.2 million.
As the unemployment rate edged up to 8.5 percent, from 8.1 percent the previous month, the manufacturing sector again led the way down, shedding 161,000 jobs in March. Employment in construction declined by 126,000, and has fallen by 1.3 million since it peaked in January 2007. Professional and business services employment fell by 133,000.
In New Jersey, Henry Perez, 34, and his family are living in the basement of his sister’s house in Rochelle Park and struggling to find work. They are refugees of sorts from the real estate collapse in Las Vegas, where Mr. Perez once lived, investing heavily in housing.
He has more recently worked in online commerce and as a marketer at an office furniture company. But after being laid off at the end of last year, he has found nothing, even as he has sharply dropped his expectations, applying for jobs at restaurant chains.
“We’re just sitting here all day long looking for jobs on the computer, frustrated and scared as hell,” Mr. Perez said. “I’m looking for anything.”
The report reinforced the reality that the pains of the downturn were hardly confined to the jobless. Those working part time because they cannot find full-time work, or because their hours have been cut, climbed by 423,000 in March, reaching 9 million.
In the Atlanta suburbs, Meg Fisher, 46, has been looking for work since she lost her job as a legal secretary in February. Her husband’s hours at his pharmacy job were scaled back. Their previous annual income of about $79,000 has been sliced to $20,000.
Ms. Fisher is applying for food stamps, while seeking freelance work as a tailor.
“It’s not going to replace my salary,” she said. “It’s not even going to come close, but it’s better than sitting around.”
Copyright 2009 The New York Times Company