Economic outlook: It gets worse before it gets better
December 10, 2008
With unemployment at its highest in years, middle-class Americans all over the country are beginning to feel the pinch of hard times. In November alone, more than 533,000 jobs were lost, bringing the total job loss for the year to 1.9 million and, according to many economists, job recovery could be slow and weak.
In the midst of what is now confirmed to be a recession, job losses are expected to continue for at least several more months, and with the slow recovery that is predicted, economists are becoming increasingly concerned. High job losses are expected in a recession, but the job market usually recovers fairly quickly and gives the economy a much-needed boost. Many economists don't expect that to happen this time.
"You can't get much uglier than this," said Richard Yamarone, a chief economist at Argus Research in a Reuters article on Dec. 5. "The economy has just collapsed, and has gone into a free fall."
According to the Labor Department, the unemployment rate rose to 6.7 percent last month, the highest since 1993. It would have been even higher except for thousands of Americans who have become discouraged from not finding employment and left the labor force.
Now, there are even concerns about rising underemployment in this country. Many people who have lost jobs and have been unable to find similar work have taken jobs making less money and often with fewer or no benefits. Workers who are stuck in jobs where they are overqualified, have gone unnoticed for the most part but are now a growing segment of those affected by the troubled economy.
"It's a huge disservice to the economy, in that it means there are highly productive, hard-working people who are not maximizing their potential," said Heidi Shierholz, a labor market economist. "They cut back on their consumption. That reduces demand. It's a downward spiral and a huge drain on the economy."
According to a Washington Post article, the government does not count some types of underemployed workers — those who are overqualified for their current work, for instance. But it does count people who are working part-time when they would prefer full-time work. That count has jumped by 2.8 million in the past 12 months, to 7.3 million.
Now, even President-elect Barack Obama is warning that the economy will get worse before it improves, and he is now pressing the Bush administration to pick up the pace on helping homeowners struggling with mortgage payments and he intends to implement the largest public-works program in decades. The huge program of infrastructure projects, including roads, bridges and schools is aimed at creating more than 2.5 million jobs in the next two years. There was no mention of how much the program would cost but experts have indicated the project could cost as much as $500 billion. Obama did acknowledge the program will be expensive, and he also mentioned the federal budget deficit, but said now was not the time to worry about it.
"We are inheriting an enormous budget deficit, you know, by some estimates, over a trillion dollars. That's before we do anything," Obama said. "And so we understand that we've got to provide a blood infusion into the patient right now, to make sure the patient is stabilized — and that means we can't worry short-term about the deficit. We've got to make sure that the economic stimulus plan is large enough to get the economy moving."
Obama indicated that the spending program he proposes to offset the recession will include an effort to make public buildings energy-efficient, renovate schools, rebuild the nation's highways, install computers in classrooms and modernize hospitals.
"We need to act with the urgency this moment demands to save or create at least 2-1/2 million jobs so the nearly 2 million Americans who've lost them know that they have a future," Obama said. "We have faced difficult times before, times when our economic destiny seemed to be slipping out of our hands. And at each moment, we have risen to meet the challenge, as one people united by a sense of common purpose. And I know that Americans can rise to the moment once again."
But the Obama plan to create jobs may meet some resistance from conservative Republicans in the Senate who are reluctant to add to the already soaring deficit with new government spending. Even if the House passes the measure, the final vote could be held up by Republican Senators.
Some analysts have been hoping that the worst is over. But instead, many Americans kept their wallets in their pockets in November, which sent sales at retailers plummeting to a 35-year low and caused the nation's automakers to register the worst sales in decades. Many manufacturers have not experienced conditions this bad since the early 1980s.
According to a New York Times article on Monday, the decline in spending is likely to continue, depriving the economy of its primary growth engine, as layoffs continue to increase. Half a million Americans, from financial analysts to factory workers, were dismissed in November alone. Rarely has a downturn affected such a broad swath of income levels.
Most frightening of all, the article added, is that the worst job losses may be yet to come. If history is any guide, millions more Americans could lose their jobs before businesses start to expand again.