Grim job outlook turns bleaker

One of the cornerstones of the proposed stimulus package is a massive investment in public works projects. The hope is that projects that have already won approval — and are lacking only funding — can produce quick results. A report from the U.S. Conference of Mayors last month listed more than 11,000 so-called “shovel ready” projects in 427 cities.

But it remains to be seen what kind of guidelines would be used to move projects to the top of the list. Obama acknowledged those concerns in his speech, exhorting Congress to "put the urgent needs of our nation above our own narrow interests."

State governments — facing huge budget gaps as sales and property taxes have fallen — are also pressing Congress to include direct aid in any stimulus package

“Aid to state government is important for preserving jobs,” said Mark Zandi, chief economist for Moody's Economy.com. “If you don’t give aid, governments are going to cut all kinds of programs and have to lay off people as well.”

Savings those jobs also means preserving consumer spending and avoiding more defaults on mortgages, car loans and credit card bills. Zandi figures that every dollar spent on state aid would generate roughly $1.36 in benefit to the economy.

To further backstop state and local governments and avert budget meltdowns, Obama this week proposed having the Fed buy municipal bonds to help cut borrowing costs. The program would be similar to the Fed’s move last fall to buy commercial paper, which many companies rely on to manage their cash flow.

It’s not clear whether the stimulus package will be able to boost employment in the ailing housing industry. Dozens of homebuilders descended on Capitol Hill this week to lobby for mortgage subsidies and tax breaks for home buyers. The National Association of Realtors is also pressing Congress for relief to reverse heavy job losses in the brokerage industry.

Economists generally agree that a sustained economic recovery won’t be possible until the housing market stabilizes.

“The fact that housing prices have kept falling so dramatically is one of the reasons the financial system is not recovering," said Frederic Mishkin, a Columbia University economist and former Fed governor. “So steps along those lines — to either lower mortgage rates or increase demand for housing — should also be a part of this package. “

Rising unemployment is exacerbating the home foreclosure situation. A record one in 10 American mortgage holders was at least a month behind on payments or in foreclosure at the end of September, the latest month available. Credit Suisse predicted last month that more than 8 million foreclosures would occur over the next four years, representing 16 percent of all U.S. mortgages.

Congress is pushing to head off foreclosures on several fronts, including a measure to allow bankruptcy judges to modify loan terms on residential first mortgages. The measure, which was twice defeated during last year’s debate over a housing relief bill, got a major boost Thursday when Citigroup agreed to support it with some modifications, including a requirement that only existing mortgages qualify.

Also in msnbc.com business ConsumerMan: The great rebate debate Retailers learn lessons from Black Friday death Your Career: How your name may hurt you Answer Desk: Unemployment benefit madness   Video: Stores are hoping for a holiday miracle

MORE FROM EYE ON THE ECONOMY

Eye on the Economy Section Front

'Problem' banks at highest level in 16 years RV industry no longer running on empty Long-term unemployed face dwindling options  Obama warns of 'double-dip recession' One in four metro areas in recovery mode Geithner warns lack of loans may slow recovery Of bats and billions: Following stimulus funds As stimulus funds trickle down, debate heats up Commercial real estate bust looms NYT: Ex-homeowners forced into shelters Eye on the Economy Section Front   Add Eye on the Economy headlines to your news reader: