598,000 jobs lost as jobless rate hits 7.6% in January
(The following story by Edmund L. Andrews appeared on the New York Times website on February 6, 2009.)
WASHINGTON The country moved into its second year of uninterrupted job losses last month, with companies shedding another 598,000 jobs and the unemployment rate moving up to 7.6 percent, the Labor Department reported on Friday.
Economists had forecast a loss of 540,000 jobs and an unemployment rate of 7.5 percent.
Job losses were once again spread across both manufacturing and services industries, reinforcing the picture of an economy that is contracting at its fastest pace in decades.
Employers in the United States have shed jobs every month since January 2008, for an aggregate decline in payroll employment of 3.1 million.
Although the United States officially slipped into a recession in December 2007, the decline was erratic and temporarily disguised by the impact of the emergency tax-rebate last spring. But since September, analysts say, economic activity has plunged on almost every front. Consumer spending started to decline in the summer, an extremely rare event in the United States, even in recession, and by September, almost every economic indicator had fallen dramatically.
For the last several months, analysts said, the United States has increasingly been trapped in a vicious circle of slumping consumer demand, falling business investment, mounting losses in the banking system, and rising unemployment, which was 7.2 percent in December.
As a result, the monthly pace of job losses shot up to about 500,000 a month for the last three months of 2008. Economists see no hint that the bottom has been reached.
Most economic forecasters had been expecting a loss of roughly 500,000 jobs in January, at least as bad as in December, because other indicators of the job market had been trending down as well. Last week, the number of Americans filing first-time jobless claims reached a 26-year high, 626,000 filled out initial applications.
Major retailers, rocked by one of the worst holiday shopping seasons in memory, have been shutting stores and laying of armies of workers in recent weeks. On Thursday, the nations retailers reported that sales fell 1.6 percent in January, the fourth consecutive month of steep sales declines.
And in sign that the countrys slowdown continues to reach beyond its borders, Canada, Americas largest trading partner, reported Friday that its unemployment rate jumped to 7.2 percent in January, from 6.7 percent in December.
In Washington, Fridays gloomy job report put more pressure on Congress to pass an economic stimulus bill. The House passed a bill last week that would provide more than $800 billion in spending and tax cuts. In the Senate, still bogged down by objections from Republicans, lawmakers were hoping to be able to muster enough votes to pass a measure on Friday
For comparison, the unemployment rate was 4.9 percent in January 2008. But some analysts contend that the current unemployment rate understates the labor markets problems because the percentage of adults participating in the labor force has slumped in recent years, and those people are not listed as unemployed.
Peter Morici, an economist at the University of Maryland, estimated that if the labor force participation rate today was as high as it was when President Bush took office, the unemployment rate would be 9.4 percent.
Ian Shepherdson, chief North American economist for High Frequency Economics in Valhalla, N.Y., said the government had become the only source of energy left to break the cycle of slumping demand for goods and falling production.
The public sector needs to act, Mr. Shepherdson wrote in a note to clients. It needs to prevent an endless spiral of attempts to increase saving, leading to reduced spending, leading to reduced incomes, leading to further attempts to raise savings, and so on.
We remain firmly of the view that the package now in Congress is the bare minimum required to slow the shrinkage of the economy over the next year.
Many economists expect that the economy will continue to contract until July at the very least, but at a slowing pace in the second quarter. That would make it the longest recession since the 1930s, outlasting the two record-holders, the mid-1970s and early 1980s downturns. Each of these recessions lasted 16 months. The current recession, which started in December 2007, would reach that milestone in April.
The Federal Reserve continues to pump money into the financial system at a furious pace. Since September, the central bank has more than doubled its reserves, from $900 billion to more than $2 trillion, by literally creating new money.
The Fed has used some of that money to help bail out financial institutions, from Citigroup and Bank of America to the American International Group.
It has been pumping hundreds of billions of dollars into new lending programs, stepping in for banks and other financial institutions to buy up a widening array of corporate debt. Later this month, the Fed will begin a $200 billion program, in conjunction with the Treasury, to finance consumer debt ranging from car loans and credit card debt to student loans.
But analysts say that the big problem is not a shortage of money, but a shortage of demand for products by businesses and consumers. As a result, banks are overloaded with excess reserves, made available by the Fed, which they are often simply parking at the Fed.
