Job losses add fuel for a recession
The U.S. economy is sliding toward a recession -- if it’s not already in one -- with at least three serious strikes against it: shrinking employment, plunging home prices and a financial sector at risk of paralysis.
The latest piece of bad news landed Friday, when the government said payrolls fell by 63,000 jobs in February after losing 22,000 in January. Private-sector positions sank by more than 100,000 last month.
The news sent the already depressed stock market sliding further. The Dow Jones industrial average fell 1.2%, dropping well below 12,000 points to its lowest level since 2006.
President Bush and the major presidential candidates each responded to the report with sympathetic remarks as well as confidence that he or she would be able to reverse the downturn.
As recently as the fall, the Bush administration predicted moderate economic growth for this year. But Friday the president’s top economic advisor conceded that economic output could decline in the first three months of this year.
“We don’t really know whether it will be negative or not,” Edward Lazear, chairman of the White House Council of Economic Advisors, said of first-quarter growth. “We have definitely downgraded our forecast.”
Other analysts were not nearly as tentative.
“We now think the economy can be described as having entered a recession in early 2008,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York.
David M. Jones, chief economist at Investors Security Trust in Fort Myers, Fla., had a similar response.
“You almost never have back-to-back payroll declines without a recession,” he said.
The Labor Department report was the latest twist of the vise closing in on the Federal Reserve, which must worry not only about shrinking employment but also a financial sector that’s spooked about the safety of investments across the board and therefore deeply reluctant to spend or lend. The central bank must cope with these problems without kindling inflation, which some analysts believe it is coming perilously close to doing.
To keep the credit markets from freezing up, the Fed said Friday that it would pump at least $100 billion into the financial system through short-term loans to bond dealers. Fed staffers said mortgage-backed securities that have lost value would be accepted as collateral.
The central bank also said it would boost the amount of money it would lend to banks in special auctions this month to $100 billion from $60 billion, and keep running the auctions for at least six more months.
Staff members said the Fed’s actions were prompted not by the job data but by signs that key parts of the financial system once again may be nearing a crisis, which has occurred repeatedly since the summer as the mortgage meltdown intensified.
The Fed already has slashed its benchmark interest rate by 2.25 percentage points since September, to 3%, and is expected to cut at least half a point more at its March 18 meeting, if not sooner.
Politically, job losses and the near-certainty of a recession make it more likely than ever that the economy will trump national security as voters’ chief concern in the presidential contest.
“Exit polls are showing that the economy is the No. 1 issue, and that is not likely to change as long as we have bad economic numbers, talk of recession and worries of inflation,” said Stuart Rothenberg, editor of the nonpartisan Rothenberg Political Report.
And the worse the economic news, the bigger the challenge for the Republican nominee, said Charles Cook, editor of the nonpartisan Cook Political Report.
“While the situation in Iraq has gotten better, the worsening economy has displaced it on the top of the public’s issue agenda,” he said. “Either one hurts Republicans in the fall.”
The Democratic contenders seized on the job numbers to denounce Bush’s leadership and, by extension, the competence of presumptive GOP nominee Sen. John McCain.
Americans “can’t afford John McCain’s promise of four more years of the very same failed Bush economic policies,” Sen. Barack Obama said in a statement Friday.
“We have to fix the economy,” Sen. Hillary Rodham Clinton said during a rally in Cheyenne, Wyo.
Even McCain said it was clear Republicans would “have a lot of work to do” to convince the electorate that they offer a path to an economic turnaround.
“Obviously the news was disturbing,” the senator from Arizona said in an interview from his campaign plane. “We’re going to have to take serious measures to get our economy under control.”
“I think we’ve got a lot of work to do. There’s no doubt about that,” he said.
For his part, the president said a recently enacted stimulus package including tax rebates would help.
“Losing a job is painful, and I know Americans are concerned about our economy,” Bush said. “But we recognized the problem early and we provided the economy with a booster shot.”
The question of whether the economy has entered a recession -- often defined as a broad, significant decline in economic activity lasting more than a few months -- is likely to take many months to be answered definitively.
Economist Robert Hall, chairman of the committee responsible for declaring a recession’s starting and ending dates, said Friday that despite many signs of stress, the National Bureau of Economic Research panel was not ready to act. The measures it uses to make its decision “have not declined anywhere near enough” to declare a recession, Hall, of Stanford University, said in an interview.
He also questioned whether the Fed’s latest steps would do much to help the country’s banks because they don’t address the fact that huge losses on mortgage-backed securities have depleted the institutions’ capital, limiting their ability or willingness to lend.
Hall’s doubts about the central bank were echoed by the National Assn. for Business Economics, a group of corporate economists. The group said Friday that in a survey of its members, 48% called the Fed’s handling of the economy “about right,” down from 72% in August.
In releasing the job data, the Labor Department said the unemployment rate fell by 0.1% in February to 4.8%, reflecting the fact that many people had given up looking for work.
The job losses cut across a wide swath of the economy, including manufacturing, construction and retail trade. Temporary help services, which often signal the trend in employment, also lost jobs.
Showing gains were government, educational and health services, and the leisure and hospitality industries.
The report seems certain to further discourage Americans, many of whom are already telling pollsters that they are deeply pessimistic about the economy’s prospects and therefore less likely to spend.
“With the consumer’s only source of support for spending coming from job-related income growth,” said Joshua Shapiro, the chief U.S. economist at forecasting firm MFR Inc., “a rapidly weakening labor market is the worst possible news for the economy.”