Recession fears stoke political debate

John W. Schoen Senior Producer • Profile • E-mail

With the latest numbers on jobs growth showing the U.S. economy deteriorating more rapidly than expected, the threat of a recession - and the measures needed to revive growth - has taken on a larger political profile.

Friday's jobs report for December, showing a much weaker than expected net gain of 18,000 jobs, added to growing fears that the U.S. economy may be headed for — or already in — a recession. Forecasters were generally looking for growth of about 70,000 jobs. The unemployment rate jumped from 4.7 to 5.0 percent, which was also higher than expected.

With evidence mounting that the economy weakened further than expected in December, Friday's report added to the political debate over how to address the impact of a declining housing market, rising energy prices and a tax policy that has the government spending more money than it takes in. And as higher energy prices pose a threat of rising inflation, the Federal Reserve has less room to maneuver as it tries to cut interest rates to keep the economy humming in an election year.

The White House sought to downplay Friday's jobs report, and warned that raising taxes could harm the economy further.

"This economy of ours is on a solid foundation, but we can't take economic growth for granted," President George Bush told reporters after meeting with his so-called Working Group on Financial Markets.

The White House and the Democratic-controlled Congress have blamed each other for not doing enough to stem the fallout related to the housing and credit debacles.

"If there were ever a shot across the bow to this administration to get off its laissez-faire boat and start helping the economy, this is it," said Charles Schumer, D-N.Y. Other Democrats, including presidential contender Sen. Hillary Clinton, called the employment figures troubling and criticized Bush's economic stewardship.

After six years of uninterrupted growth, the outlook for the U.S. economy in 2008 has darkened considerably in just the past month. While many economists say it’s too soon to know whether a recession is coming, forecasters say the latest economic figures don’t look promising.

“If there’s going to be a recession, it’s entirely possible that we are in it — or just beginning it now,” said Nigel Gault, an economist at Global Insight. “We won’t know for a while. In two or three months, looking back from there to the December, January, February numbers, I think it will be evident by then whether or not we’ve entered a recession.”

Given the rapid pace of slowing since the sizzling 4.9 percent annual growth rate logged in last year’s third quarter, there is some speculation that the economy may already be slipping into a period of negative growth. Given the lag in the collection and analysis of economic data, it’s not unusual for a recession to be underway before statistics confirm it.

"The rise in the unemployment rate is very disturbing," John Ryding, chief U.S. economist for Bear Stearns, told clients in a note Friday morning. "January's data will be very important in informing on the state of the business cycle," he added.

Saying he was now on "recession watch," Ryding noted that the unemployment rate has now risen 6-tenths percent in the last year, a jump that hasn't happened since 1949 without a recession following.

With the presidential campaign heating up, and the economy sure to be an issue, some voters are convinced the economy is already in recession. Though popular definitions vary, the term generally refers to a period of declining Gross Domestic Product. Some regions of the country, such as the industrial midwest, and some industries, such as housing, are apparently already headed in reverse. But a national recession can't be confirmed until the economic data show the overall economy is indecline. Since World War II, economists, academics and investment analysts have relied on the National Bureau of Economic Research, a private research group, to provide the "official" timing and severity of recessions.

Rising foreclosures and falling home prices have also put something of a damper on consumers, many who have funded a large portion of their spending in recent years with gains on the value of their homes. Coupled with the recent resurgence in energy prices, many consumers are feeling squeezed; any resulting slowdown in spending could also present the economy with a substantial headwind.

The December jobs data follows bad news earlier this week from a monthly report on U.S. manufacturing activity from a private research group; the numbers showed a surprise slowdown to the lowest level in almost five years. Though it takes more than a single month’s data to confirm a trend, the report from the Institute of Supply Management suggests that the economy may be in worse shape than many economists had believed.

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