With 663,000 more jobs disappearing from the American economy last month, swelling the total number of jobs surrendered to the recession beyond five million, the government’s response to the downturn is being put to a strenuous test.
When drafting plans in January to spend roughly $800 billion to stimulate the deteriorating economy, the Obama administration operated on the assumption that the unemployment rate would reach 8.9 percent by the end of the year — without the extra federal spending. Three months into the year, the unemployment rate has already soared to 8.5 percent, from 7.6 percent, the highest level in more than a quarter-century.
The severity and breadth of the job losses in March — which afflicted nearly every industry outside of health care — prompted economists to conclude that an agonizing plunge in employment prospects was still unfolding.
“It’s really just about as bad as can be imagined,” said Dean Baker, a director of the Center for Economic and Policy Research in Washington. “There’s just no way we’re anywhere near a bottom. We’ll be really lucky if we stop losing jobs by the end of the year.”
The pace of retrenchment has prompted talk that another wave of government stimulus spending may be needed to accompany the $787 billion already in the pipeline.
“We’re clearly looking at a worse downturn than they had been anticipating when they planned the stimulus,” said Mr. Baker, whose organization tends toward liberal policy prescriptions. “We’re going to need some more.”
But others — not least, decision-makers inside the Obama administration — deemed such talk premature. The dreadful jobs report landed among tentative signs of improvement in a few areas of the economy, with recent snippets of data lifting stock markets and sowing cautious hopes that the beginnings of a recovery might be taking shape.
After a miserable holiday season, retail sales appear to have stabilized. Auto sales, while extremely weak, improved slightly in February. Houses have been selling in markedly greater numbers in important markets like California and Florida, albeit at substantially reduced prices. Consumer spending appears to have leveled off after plummeting over the last three months of 2008.
“The downturn is still very intense, but it’s no longer intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com.
The surge of government spending is just beginning to work its way through federal and state bureaucracies and is expected to support jobs in construction and related industries later this year.
“We’re attacking this in a very aggressive way,” the labor secretary, Hilda L. Solis, said Friday in an interview, arguing that it was too early to consider another round of stimulus spending. “We will revisit that once we expend all the money that we have accrued.”
For now, the same factors that have assailed the economy for more than a year remain in force, with tattered banks reluctant to lend, and even healthy households and businesses averse to borrowing and investing in the face of grave uncertainty.
The very perception that millions more will lose jobs and housing prices will fall have turned such outlooks into reality: As businesses scramble to cut costs and confront gloomy sales prospects, many are shrinking their work forces, removing more paychecks from the economy.
“There’s a lot of survival job-cutting going on throughout American business,” said Stuart G. Hoffman, chief economist at PNC Financial Group in Pittsburgh. “There won’t be any job growth at all this year. The economy is far, far from being out of the woods.”
Still, Mr. Hoffman is inclined to wait a few months and hope for improvement before calling for a new wave of stimulus spending.
“You don’t just double the dose if the patient doesn’t immediately improve,” he said.
The Treasury recently outlined plans for an expanded bank rescue aimed at lowering borrowing costs for businesses and households. The Federal Reserve has begun buying $300 billion worth of long-term Treasury bonds in an effort to drive down the interest rates on mortgages, auto loans and other forms of finance./.