Economist: Stimulus Appears To Be Working

More jobs were lost last month than expected, but the Obama administration's economic stimulus package promises to create 600,000 jobs by the end of the summer.

The U.S. has lost 6.5 million jobs since job losses began in December 2007. Mark Zandi, the chief economist at Moody's Economy.com, says without the stimulus, the numbers would be worse: closer to 7 million jobs lost.

"It's still bad ... but better than the case without the stimulus," Zandi tells Robert Siegel.

Zandi says the results of the stimulus package should be visible in the third and fourth quarters of this year in the form of people spending more money in shopping malls and elsewhere. This, he says, should convince businesses to scale back — but not end — their job cutting.

"I do think that by this time next year, the economy will be on much sounder ground," he says.

Unemployment Up To 9.5 Percent, A 26-Year High

U.S. businesses shed 467,000 jobs in June and the national unemployment rate increased to 9.5 percent — the highest in nearly 26 years, the Labor Department said Thursday.

Job losses were widespread in all sectors of the economy, with big and small businesses laying off workers to stay afloat as the recession continues.

Services showed the sharpest drop, falling 244,000, but the pain was felt across the board, as manufacturing, retail and construction shed workers. In all, 14.7 million people were on the unemployment rolls in June.

"These job losses [are] much more severe than had been expected — the expectation being around 360,000 in job losses — so the economy is still very clearly struggling at best," said Hugh Johnson, chairman of New York-based Johnson Illington Advisors.

The construction sector cut 79,000 jobs last month, and professional and business services cut 118,000 positions — a huge increase over the 48,000 cut in May. The manufacturing sector lost 136,000 jobs, a slight improvement from the previous month when 156,000 jobs were cut.

The only bright spots in the report were education and health care, which posted gains of about 34,000.

Johnson attributed a large portion of the declines to the automobile plant closures by Chrysler and General Motors

"If we zero in on these numbers, I think we'll see a substantial part of the loss comes from the automobile sector where there were significant shutdowns at Chrysler and General Motors," he said.

President Obama said Thursday he is "deeply concerned" about the nation's rising unemployment rate but that the current economic situation was years in the making. During an interview with The Associated Press, the president said he is confident the economy will turn around.

White House spokesman Robert Gibbs said the administration expects the economy will continue to lose jobs in the months ahead, though he said there are indications that the economic stimulus plan is working. Gibbs said he expects the unemployment rate will rise to 10 percent over the next two to three months.

U.S. stocks fell sharply after the report was released, signaling that investors believe the Obama administration's stimulus hasn't yet kicked in.

"Clearly the economy is still in a recession. These are very, very weak numbers and are obviously going to be very disappointing to investors throughout the country," Johnson said.

Economists and the administration have said the unemployment rate could hit 10 percent as the U.S. struggles to come back from the worst downturn since the Great Depression.

The Labor Department also said the number of Americans filing new claims for unemployment benefits fell last week. The department said initial jobless claims dropped by 16,000 to 614,000 for the week ending June 27.

The number of people who continue to draw unemployment benefits dropped to 6.7 million.

Federal Reserve Chairman Ben Bernanke has predicted that the country will begin to pull out of the recession by the end of the year, though experts have warned that employment figures generally lag behind.

With reporting by NPR and The Associated Press

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