Job Losses Dampen Hopes for Recovery
Unemployment Rises To 9.5%; Stocks Slide

By Neil Irwin
Washington Post Staff Writer
Friday, July 3, 2009

Mounting job losses rattled hopes yesterday that the economy is on track to grow later this year, showing that prospects for American workers are terrible -- and still getting worse.

Employers reduced their payrolls by 467,000 jobs in June, the Labor Department said, far more than forecasters had expected. The unemployment rate rose to 9.5 percent, from 9.4 percent. And last week, another 614,000 people applied for unemployment insurance benefits.

The number of job losses had decreased every month since January before spiking again in June, and economists think it is highly likely that the jobless rate will hit double-digits later this year. A broader measure of unemployment, which includes people working part time who want full-time work and those who have given up looking for a job, has already risen to 16.5 percent. The nation now has the same number of jobs it did in 2000, meaning that nine years of employment gains have disappeared.

The stock market fell steeply on the news yesterday, with the Standard & Poor's 500-stock index off 2.9 percent. European stock markets fell sharply as well, after the European Central Bank left its target interest rate unchanged and its president indicated that he expects a recovery to begin in the middle of next year. Investors have wanted the bank to fight the recession more aggressively, which it seems disinclined to do.

Until yesterday, economic forecasters and government officials had become increasingly enthusiastic about signs that the U.S. economy is stabilizing. Many had begun to think as the year progressed, layoffs would taper off, companies would crank up their assembly lines and the troubled U.S. economy would get back on a path toward growth.

While that's still a possibility -- economic indicators send mixed signals during turning points -- yesterday's data, combined with other recent information, undermine the idea that a recovery is imminent.

"This sprayed some Round-Up on the green shoots," said David Shulman, a senior economist at the UCLA Anderson Forecast, using a metaphor for signs of economic improvement that Federal Reserve Chairman Ben S. Bernanke popularized in the spring.

"The economy is in the process of bottoming, but that's different from saying it's recovering," Shulman said.

Forecasts for expansion in the second half of the year depend on consumers increasing their spending -- an assumption that looks increasingly questionable. Even as consumers got larger paychecks due to the government's stimulus program in May, they saved that money rather than spent it. Wages were flat in June, according to yesterday's report. Finally, job losses are continuing at a furious pace, and people without jobs tend not to spend much money.

Consumers and businesses alike are more confident than they were in the winter, according to various surveys, and the stock market is up sharply since March. But improved confidence isn't enough to kick-start an economy undergoing painful adjustments that are leading to continued layoffs. Indeed, economists said the best hope for improvement is for economic stimulus spending to kick in more vigorously.

"We're stuck in a very disappointing scenario, with the private-sector economy looking like it's going to be weaker longer than most anyone expected," said John Silvia, chief economist of Wachovia Corp. "In the second half of the year, the federal government is really going to carry the water for the U.S. economy."

Republicans in Congress assailed the weak numbers as evidence that the Obama administration's $800 billion economic stimulus package isn't working. "Americans were promised the 'stimulus' would keep the unemployment rate from going above eight percent," House Minority Leader John A. Boehner (R-Ohio) said in a statement. "Where are the jobs?"

Independent economists generally think that it is too early to judge the effectiveness of the stimulus plan, given that the spending package is only starting to ripple through the broader economy.

Speaking in the Rose Garden yesterday, President Obama predicted that recovery will take a long time. "As I've said from the moment that I walked into the door of this White House, it took years for us to get into this mess, and it will take us more than a few months to turn it around," Obama said.

The June job losses were broad based, with the steepest cuts among manufacturers, which shed 136,000 positions; the auto industry and its suppliers slashed 26,500 jobs. But white-collar jobs were shed in large numbers as well, with the professional and business services sector cutting 118,000 positions, information cutting 21,000 and financial activities losing 27,000.

Even the federal government shed jobs, 49,000 of them, as the Census Bureau eliminated temporary positions. Education and health-care sectors were the only major drivers of growth, creating 34,000 positions.

There were positive signs in the report, though less apparent than the overall numbers. The rise in the unemployment rate was the smallest in a year, noted Bernard Baumohl of the Economic Outlook Group. And manufacturing overtime hours were stable, which can be an early sign of improvement. In a separate report yesterday, the Commerce Department said factory orders rose 1.2 percent in May, which was better than expected.

"The picture that is emerging with increasing clarity is of an economy that has undergone a wrenching recession the last 18 months but is now gradually transitioning into recovery," Baumohl said.

Staff writers Perry Bacon Jr. and Michael D. Shear contributed to this report.

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