Another Wallop to the Out of Work
Unemployment Hits 8.5 Percent, Blunting Hopes That a Turnaround Is at Hand

By Neil Irwin
Washington Post Staff Writer
Saturday, April 4, 2009

The U.S. job market declined sharply last month, dulling hopes that the economy could be on the brink of a turnaround and signaling that American workers are still in the thick of a severe recession.

The economy shed 663,000s jobs in March, bringing to 5.1 million the number of jobs lost since the start of a recession that, next month, will rank as the longest U.S. downturn since World War II. The unemployment rate continued its hyperbolic rise, to 8.5 percent from 8.1 percent.

In recent weeks, there have been signs that consumers were not holding onto their wallets quite as tightly as they did late last year, and that home sales were stabilizing. Just yesterday, Federal Chairman Ben S. Bernanke said measures taken to unlock credit markets were working.

Stock markets, meanwhile, have been rebounding on hopes that the economy will bottom out in the months ahead. The Standard & Poor's 500-stock index rose 1 percent yesterday, completing its fourth week of gains, and the Dow Jones industrial average closed above 8,000 for the first time since February.

The brutal report on the labor market, though, makes clear that the ranks of the jobless are all but certain to rise for many more months. The pace of job losses no longer seems to be accelerating, but levels remain extremely high. A broad measure of joblessness, which includes people working part time but who would prefer full-time work and people who want work but have given up looking, has hit a record 15.6 percent.

"There has been this general buzz that maybe some indicators floating around out there are not quite as bad as they had been," said Heidi Shierholz, a labor economist at the Economic Policy Institute. "But there was none of that in this jobs report. It was all bad."

Employers in nearly every industry slashed jobs, with the steepest declines in construction and manufacturing. Employers across sectors are holding back on hiring, reluctant to add to payrolls until they have a better handle on how severe the downturn will be and when it will end. Workers who remain on staff are seeing their hours cut.

"Every business is adjusting to the new reality," said Eugenio Aleman, a senior economist at Wells Fargo. "They will continue to adjust during the rest of this year."

Even the government, formerly a source of strength in an otherwise desolate job market, is shrinking. State and local governments cut a combined 12,000 jobs last month as tax revenue plummeted.

The Obama administration has said that help is coming. As part of the government fiscal stimulus package, for example, states are set to receive $166 billion in aid to support Medicaid and education. That, officials say, should help states maintain spending levels if they're unable or unwilling to borrow money.

"We're doing everything we can to provide assistance," Labor Secretary Hilda L. Solis said.

Solis also noted the administration is encouraging states to extend their unemployment benefits further for those who cannot find work. "This is not an acceptable number of people to be unemployed," she said.

Still, the administration will only be able to cushion the blow of the recession so much. Economists do not expect to see the most noticeable effects from the stimulus package until later this year, and many analysts think the unemployment rate will reach at least 10 percent.

For now, the jobless rate is climbing fastest among men (9.5 percent were unemployed, up from 8.8 percent in February) and those with little education (unemployment was 13.3 percent among those without a high school diploma, up from 12.6 percent). The unemployment rate is rising much more slowly for women and people with a college degree.

Those trends reflect the nature of this recession. Construction and manufacturing -- which disproportionately employ men and those with less education -- have suffered more than any other sectors.

Even apparent bright spots in yesterday's report were not necessarily so. Although average hourly earnings rose 3 cents, to $18.50, it was likely because companies are laying off less skilled workers, pushing average wages higher even if any given worker is not receiving a raise.

The jobs report wasn't the only discouraging sign yesterday. A closely watched survey showed that service companies were contracting more rapidly in March than they did in February. The Institute for Supply Management said its index of non-manufacturing businesses fell to 40.8, from 41.6; any reading below 50 indicates a contraction.

For a turnaround, individuals and businesses alike need to gain greater confidence in the future. Consumers are avoiding major purchases for fear they might lose their jobs and businesses aren't hiring. If, in the months ahead, those who still have work begin to feel more confident, they could return to stores, giving businesses the confidence to hire.

"If it gets to June or July and someone still has their job, maybe they will feel confident enough to go out to dinner or replace the car that they've wanted to do for some time," said Joel Naroff, an economist. "As much as I'm worried about the unemployment rate getting up to 10 percent, I'm more worried that the other 90 percent are spending as if they're unemployed as well."

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