WASHINGTON – Mounting job losses rattled optimism Thursday 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 rate 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 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 Thursday, 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 Thursday, economic forecasters and government officials had become increasingly enthusiastic about signs 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.
That’s still a possibility; economic indicators always send mixed signals during turning points. But Thursday’s data, combined with other recent information, undermine the idea that a recovery is imminent.
“This sprayed some Roundup 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 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 economic expansion in the second half of the year depend on consumers increasing their spending – an assumption that looks increasingly questionable. Even as consumers received more money in their paychecks due to the government’s economic stimulus program in May, they saved that money rather than spent it. Wages were flat in June, according to Thursday’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 alone 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 than it has to date.
“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 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 Thursday in the Rose Garden, President Barack 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.