Nation’s jobless rate rises to 8.5%
Optimism that the end of the recession is in sight may be growing, but the U.S. unemployment rate, which reached its highest level in a quarter of a century last month, is likely to keep rising for some time to come.
With a net 663,000 jobs eliminated in March, the unemployment rate jumped to 8.5% from 8.1% in February. Since the economy began contracting at the end of 2007, company payrolls have shrunk by more than 5 million positions. Almost two-thirds of those jobs were lost in just the last five months.
And because employment is historically a lagging indicator -- continuing to languish well after economic output has started growing again -- the outlook for workers remains grim.
Most economists forecast that employment will decline through the end of the year. Many predict the jobless rate will peak at 10% or more.
“Even once we hit recovery, it usually takes several months -- up to five months -- for the jobless rate to come down again,” said Diane Swonk, chief economist at Mesirow Financial.
But there’s no doubt that optimism has rebounded.
Among the recent signs of renewed economic life, orders for manufactured goods jumped in February after half a year of declines, consumer spending rose for the second month in a row, and a report on construction spending was better than expected.
And the stock market, which tends to bottom out months before the economy does, has been on a tear in recent weeks as investors have grown more confident about a return of economic growth this year.
The Dow Jones industrial average gained about 40 points Friday, closing above 8,000 for the first time in almost two months. The blue-chip index has soared 22% -- almost 1,500 points -- since plunging to a 12-year low March 9.
Despite the current overall economic bleakness, the stock market is anticipating beneficial effects from low mortgage rates, the Obama administration’s $787-billion stimulus package and the Treasury Department’s plan to deal with the toxic assets that have crippled banks.
“The knife’s still falling. It’s just not falling as fast,” Swonk said.
And the G-20 summit of world leaders in London this week demonstrated at least a public commitment to a coordinated global response to the economic downturn.
“A lot of action is being taken,” said Marisa DiNatale, a senior economist at Moody’s Economy.com. “That’s the key to a lot of this. If businesses and consumers feel as though things are going to get better or that we’re nearing a bottom, that facilitates that cycle of getting out there and spending money.”
But some economists worry the economy may experience a false bottom, a noticeable improvement that does not last.
Because much of the favorable economic data come from a single month, February, the good news could prove to be an aberration, DiNatale said.
“You’re really only talking about one good month in a string of bad months,” she said.
And government programs for helping with home foreclosures, toxic assets and other aspects of the economic crisis are still in the early stages.
Also, it is difficult to predict how consumers will respond in the months ahead. Measures of consumer confidence are at historic lows. Even during the last economic expansion, the wages of workers didn’t keep pace with inflation. And the jarring experience of sharp job losses in this recession have all added to the uncertainty.
Big risks also remain on the horizon. High among them is the future of General Motors Corp. and Chrysler, two of the Big Three auto companies that were once emblems of American industrial might.
President Obama this week set a 60-day deadline for GM to come up with a restructuring plan that includes concessions from creditors and workers. He warned that he would allow the company to go into bankruptcy if it didn’t meet the deadline. He also set a 30-day deadline for Chrysler to complete negotiations for a sale of the company to Italian automaker Fiat.
Bankruptcy or severe cutbacks at the auto manufacturers would threaten the jobs of not only hundreds of thousands of auto workers but also many more workers at suppliers around the country.
Also, despite the positive initial reaction to the Obama administration’s plan to deal with toxic assets held by banks, it is still difficult to determine the full extent of the damage to the financial system.
At 8.5% the unemployment rate is at its highest level since November 1983, when it was dropping from a late-1982 peak of 10.8% during the recovery that followed a recession that hit the manufacturing sector hard.
A broader measure of unemployment, which includes laid-off workers who have given up on finding jobs or who have been forced to take part-time jobs, shows 15.6% of workers unable to obtain full-time work.
That was up from 14.8% in February and 9.1% in March 2008.