Job losses highest since 1945

With jobs disappearing in numbers not seen since the end of World War II, pressure mounted on Congress and President-elect Barack Obama on Friday to overcome their differences and reach agreement on a massive recovery program to stave off economic catastrophe.

The nation's unemployment rate rose to an eye-popping 7.2% in December and brought the total jobs lost for the year to the largest number since 1945, the Labor Department said. More alarming than the bare numbers was the trend line: The economy has lost 2.6 million jobs in the last 12 months, but 75% of them vanished in the last four months, with 524,000 jobs lost in December alone.

Economists expect the employment picture to deteriorate further in the months ahead.

"No one is expecting it to turn around any time soon," said Harry Holzer, a labor economist with Georgetown University and the Urban Institute. "The labor market lags behind the rest of the economy. Absent any signs of stabilization, we can expect this to continue for some time."

Obama moved quickly to tell Democrats and Republicans alike that he was willing to compromise and make adjustments in his proposed $775-billion stimulus package. But he warned that ideological differences must not stand in the way of quick action.

"There are going to be a whole host of good ideas out there, and we welcome all of them," Obama told reporters in a news conference at the end of a week of relentless messaging on the need for a swift economic rescue package. "We're going to sift through all of them and we are going to work in a collaborative fashion with Congress."

"What we can't do is drag this out," he declared.

Economists said the economic crisis that is driving down employment has several parts. For one thing, ordinary Americans have cut back sharply on spending in the last few months as they have watched the value of their homes and investments decline. Meanwhile, businesses, sensing lower demand, are trimming hours and payrolls to conserve their resources. Moreover, economists say that fear is fueling a vicious cycle, with preemptive action taken by companies and consumers in anticipation of further bad news, which in turn helps assure that the future news will be bad.

"The reason why employers are letting people go is not the traditional reason that employees are costing more than they are bringing in," said Lee Ohanian, an economist at UCLA.

"It's the fear factor. The crisis of confidence is having a big impact on employer decisions to hire and invest, and on consumer decisions to purchase. This is the first recession I've seen that has that characteristic."

More than 11 million American workers -- roughly 1 out of 14 -- are unemployed and actively looking for new jobs, according to the Labor Department. An additional 8 million are working part time even though they want full-time work, and 1.9 million were out of work and either too discouraged to keep looking or had refocused on school or caring for family.

"Factoring in discouraged workers, unemployment is closer to 9.4%," said Peter Morici, an economist at the University of Maryland. "Add workers in part-time positions that cannot find full-time employment and the hidden unemployment rate is 14.5%."

The stock market had braced for bad news, so the reaction was relatively muted compared with the dramatic swings of last autumn. The Dow Jones industrial average closed down 143.28 points, or 1.6%, to 8,599.18.

The last time the unemployment rate topped 7% was in 1993. In nominal terms, the economy has lost more jobs this year than in any year since 1945, although the population has grown significantly.

Still, economists generally expect this recession, which began in December 2007, to be the longest since the Great Depression. The two longest recessions of the postwar era -- 1973-75 and 1982-83 -- each lasted 16 months. (The deepest quarterly contraction of the postwar era was a 10.4% decline in gross domestic product in the fourth quarter of 1958.)

The unemployment rate is still far from the levels of the Great Depression, when more than 20% of American workers lost their jobs, as well as of the shorter but deep recession of the early 1980s, when unemployment reached 10.8% in 1982.

The report was full of ill portents nonetheless. For one thing, the average number of weekly hours worked dropped to 33.3 per worker. That's the lowest number since the Labor Department began keeping track in 1964. Businesses tend to cut hours before cutting workers, suggesting that more layoffs are pending.

"We're seeing a complete unraveling of the labor market and are on track for getting beyond 10% unemployment," said Lawrence Mishel, president of the left-leaning Economic Policy Institute in Washington.

The Labor Department, continuing to crunch numbers from earlier months, said payrolls contracted by 584,000 jobs in November, up from an already record-breaking estimate of 533,000, and October's losses were 423,000 instead of 320,000 as reported earlier. The department also revised November's unemployment rate to 6.8% from an initially reported 6.7%.

Nariman Behravesh, chief economist at IHS Global Insight, an economic forecasting firm in Lexington, Mass., said he expected the hemorrhaging of jobs to continue through much of 2009.

"During the first few months, the magnitude of the job losses will be at least as large as the November and December drops," he said in a note to subscribers. "However, if a large fiscal stimulus package can be enacted quickly, then the pace of job losses in the second half of the year can be slowed and by early 2010 the prospects for the U.S. economy starting to create jobs again will be good."

December's job losses touched nearly every sector of the economy. Manufacturing payrolls, which have been shrinking for more than a year, posted their largest one-month decline since 2001. Construction firms also continued to shed workers, losing 899,000 jobs since the housing boom peaked in September 2006.

"There is no silver lining here," said Alan Krueger, a professor of economics at Princeton University and a former chief economist for the Labor Department. "The only sectors that didn't shrink are education, healthcare and government."

Morici said that without a massive government stimulus program, the economic downturn would last a long time.

"This will prove to be a depression if we don't act quickly," Morici said.

"The economy is not in a self-correcting mode. Recessions self-correct, but depressions do not."

Although momentum is growing for a massive relief package, Democrats and Republicans and some factions in both parties are at odds over just what measures to include and how large they should be.

House Minority Leader John A. Boehner (R-Ohio) expressed support for some kind of a stimulus program but said it should emphasize tax cuts, not government-funded job programs and other spending.

"America cannot buy its way to prosperity with more and more government spending," Boehner said in a statement.

Republicans privately acknowledge that Obama has more than enough votes now to pass the stimulus package, even in the Senate, where significant legislation needs a 60-vote majority to avoid a filibuster.

But the incoming president wants to win his first major legislative test with an overwhelming bipartisan majority.

"They have 60 votes on the stimulus bill walking in the door. But they want 80," said a senior Republican aide. That gives the Republicans leverage in the negotiations. Obama has proposed about $300 billion in tax cuts -- about 40% of the total package.

At the same time, Democratic senators laid out their own concerns in a private meeting Thursday with Lawrence Summers, Obama's choice to head the National Economic Council.

"It was productive," Sen. Barbara Boxer of California said. "Larry Summers, one of the words he said was, 'I get what you mean. I'm going to go back. I hear you.' "

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maura.reynolds@latimes.com

peter.nicholas@latimes.com

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