Grim job outlook turns bleaker

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

Friday’s employment report — showing another half million jobs lost in December — confirms an already bleak outlook for the job market and adds urgency to President-elect Barack Obama's plan for a massive economic stimulus package.

But analysts say that even with fresh federal stimulus of $775 billion or more the job market probably won’t pick up again until early 2010.

The U.S. unemployment rate jumped to 7.2 percent in December, the highest since early 1993. For all of 2008, the economy lost a total of 2.6 million jobs. That was the most in one year since 1945, when nearly 2.8 million jobs were lost.

Some 1.9 million of those jobs were lost in just the last four months of the year.

"The situation is dire," Obama said during a news conference Friday to discuss additional appointments for his administration. He added that "this is the moment to act and act without delay."

The latest data show that virtually all sectors of the economy are being hit with job losses.

“In the last several months you can see that the job losses have spread sharply to the service economy, which tells you that the recession is rippling out into all parts of the economy — not just focused on production of durables,” said Joel Prakken, chairman of Macroeconomic Advisers, which jointly produces a private tally of jobs with payroll provider ADP.

As the pace of job losses has increased, so has the sense of urgency for a huge government spending package to get the economy back on track. Details are still sketchy, but in a speech Thursday Obama painted broad outlines of the kinds of programs he wants Congress to approve as part of his plan to “create or save” 3 million jobs.

The package would include tax cuts for individual and businesses, along with massive investments in energy, education, health care and infrastructure. Congressional leaders have said they hope to have the package ready by early February.

Local governments, small businesses, homeowners and other consumers could get additional financial aid from an ongoing overhaul of the $700 billion financial rescue program past by Congress last year. The program has come under attack from members of Congress who are critical of how the first half of the money was allocated and calling for changes that broaden its scope. Under the original program, congressional approval is needed before the second half can be spent.

No matter how much money is committed, the downward economic spiral will be difficult to break. Consumers — many who have been laid off or fear for their jobs — have pulled back on spending. That has cut into sales of goods and services, leading to a vicious cycle that results in yet more layoffs.

“Unfortunately, that’s the scenario we see ahead,” said Bernard Baumohl, chief global economist at The Economic Outlook Group in a note. “Even if Washington enacts and then implements the (economic stimulus) program fairly quickly, don’t expect any sharp rebound in job creation anytime soon. At best, we expect the economy to emerge from recession in the second half, but the recovery in employment will take longer.”

That outlook is shared by forecasters at the Federal Reserve.

“Amid the weaker outlook for economic activity over the next year, the unemployment rate (is) likely to rise significantly into 2010,” according to minutes of the Fed’s December meeting of policymakers released this week.

Most economists say they don’t expect hiring to pick up again until well after the economy begins to show clear signs of recovery. Until then, job losses from deteriorating sectors like commercial construction and retail sales are likely to outnumber any new jobs the Obama stimulus plan may create to rebuild roads or develop alternative energy technology.

“The bigger question (about the stimulus program) is not the direct job creation, but can the combination of monetary and fiscal policy shock the economy back to life, causing growth in private-sector jobs?” said Ethan Harris, co-head of U.S. economics research for Barclays Capital. “Our guess is that by the fourth quarter of this year, jobs will start to slowly recover, but there will be more than 2 million jobs lost between now and then.”

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