President-elect Obama was right to warn about a deep and prolonged recession, and to urge bold, immediate action to counter distressing trends in the economy and the jobs market.
His warnings are sure to be underscored tomorrow when the Bureau of Labor Statistics issues its monthly jobs report. Almost 2 million jobs were lost from December 2007, when the recession began, through last November, and economists are forecasting that at least another 500,000 more will have disappeared in December 2008. If so, this will be the steepest rate of job losses in the first year of any post-war recession. Without swift intervention, similar or higher monthly losses are expected to mount well into next year, and continuing weaknesses in the labor market are likely to persist for another two to three years.
More than 5.5 million jobs are likely to be lost during this recession unless a major job-creating stimulus plan is enacted.
According to projections by Mark Zandi of economy.com, unemployment -- which was at 5% at the start of the recession -- could reach 10.2% in mid-2010. That would be the largest percentage increase in the unemployment rate since the 1930s, a trend that is sure to touch every American family.
Although the absolute unemployment rate was slightly higher in December 1982, when it reached 10.8%, the rate of increase was not as extreme then. (Unemployment started at a higher level in that earlier recession). The rate of increase underscores the rapid pace of economic deterioration, which will likely drive down wages for all workers, even those whose jobs are secure.
A smart, immediate stimulus could dramatically change these grim numbers, although the coming year will be painful no matter what.
Obama is calling on Congress to pass a stimulus package that will cost $700 to $800 billion or more over two years. That amount could create 2.5 million jobs in the first year and a total of 5 million jobs in the first two years. If so, it would lower the unemployment rate by 3.2 percentage points, leading to a peak unemployment rate of around 7%. While unemployment will still be uncomfortably high, the stimulus package as envisioned by Obama would prevent double digit unemployment, give the economy a solid footing for future growth, and begin to meet long-term needs.
As Obama said in today's speech, the economy is certain to get worse before it gets better, but swift action on a recovery plan can significantly reduce the severity and length of this recession.