Heavy Job Loss Prompts Stimulus Criticism

The surprising loss of 467,000 jobs in June, far more than expected, is fueling Republican criticism of the Obama administration's stimulus program. After the numbers were announced Thursday, President Obama called the huge job losses sobering. The continuing fallout in the labor market is causing problems in the housing sector, and vice versa.

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The surprising loss of 467,000 jobs in June, far more than expected, is fueling Republican criticism of the Obama administration's stimulus program. President Obama, for his part, called the huge job losses sobering after they were announced yesterday.

NPR's John Ydstie has more.

JOHN YDSTIE: The elimination of 467,000 jobs from payrolls in June followed a much smaller loss of 322,000 jobs in May. That smaller number had been viewed as a hopeful sign that the economy might be bottoming out. Some also saw it as the first glimmer of evidence that the big government stimulus package was beginning to work. Yesterday's employment report dashed those hopes. Republicans chose the occasion to release an online video featuring a bloodhound trying to sniff out any jobs produced by the president's stimulus package.

(SOUNDBITE OF ONLINE VIDEO)

AIG: We went to AIG, where the stimulus meant big bonuses for big executives, but no new jobs.

YDSTIE: Actually, AIG got TARP money, not money from stimulus package. But it was just a light hearted video, said House Minority Leader John Boehner, who appeared in the final scene with the bloodhound.

(SOUNDBITE OF ONLINE VIDEO)

JOHN BOEHNER: This is Ellie Mae. She hasn't found any stimulus jobs yet, and neither have the American people. It's time to stop runaway spending in Washington and help small businesses get the economy running once again.

YDSTIE: The Obama administration claims the stimulus has created or saved hundreds of thousands of jobs since it was enacted. That's impossible to document. Yesterday, the president said that his administration had taken what he called some extraordinary measures to blunt the hard edges of the worst recession of our lifetime.

BARACK OBAMA: But as I have said for 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.

YDSTIE: The task of the turning the economy around has gotten even more difficult as the unemployment rate continues to rise. It now stands at nine- and-a-half percent. It's the highest level since 1983, with six-and-a-half million people out of work. Nicolas Retsinas, who's the director of Harvard University's Center for Housing Studies, says one of the big challenges the economy faces is the negative feedback loop that has developed between continuing job losses and the decimated housing sector.

NICOLAS RETSINAS: The continuing data on loss of jobs tells us we're going to have a continuing stream of foreclosures ahead.

YDSTIE: That's, of course, because many people who are out of work can't make their house payments. Retsinas predicts that by the end of the recession, the number of foreclosures could reach six million. But it's not just those experiencing the job losses and foreclosures that are affected, says Retsinas.

RETSINAS: Even if you haven't lost your job, reading about other people losing their jobs makes you worry about your job. If you're worried about your job, one of the things you're not going to do is spend money. And you're particularly not going to make a large investment in buying a home.

YDSTIE: And job losses followed by foreclosures produce another effect: falling home prices. That can make even people who keep their jobs and homes feel poorer and less likely to go shopping. And less consumer spending means less demand for goods and services, even more job losses and a slower recovery. Concerned that the bad job numbers may extend the recession hammered the stock market yesterday. The Dow Jones industrials lost 215 points. That's a 2.6 percent loss. The S&P 500 fell 2.8 percent.

John Ydstie, NPR News, Washington.

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Q&A: Rising Unemployment Clouds Outlook

The increase in the unemployment rate to a 26-year high of 9.5 percent doesn't bode well for a smooth transition to economic recovery. Economists expect unemployment to continue to rise into 2010, and possibly longer.

Here, a look at what some leading economists say lies ahead as the fall season approaches, when retailers typically expect a boost from back-to-school shopping.

What does the unemployment rate tells us about the prospects for recovery?

Economists said they expected to see job losses; however, the 467,000 job cuts in June exceeded the consensus of analysts' projections. During the previous four consecutive months, there had been some improvement in the number of jobs lost. But the June numbers put that trend to a halt. And now some analysts wonder whether the headway was ephemeral.

But the bad news didn't stop there. The decline in workers has been accompanied by a shortening of the workweek.

"[Work] hours are falling and continue to fall very rapidly," says economist Dean Baker of the Center for Economic and Policy Research. And that translates into smaller paychecks for everyone.

What about efforts to revive the economy with the government's stimulus plan?

Economists say stimulus and interest rate reductions by the Federal Reserve have had concrete results nationwide.

"I think it has helped restore confidence in the financial markets," says Simon Johnson, a senior fellow with the Peterson Institute for International Economics. "The stimulus is playing its role. The question is, where do we go from here?"

In addition to dropping interest rates to zero, programs to inject cash into the financial system through buying Treasury bonds and purchasing the debt of mortgage finance giants Fannie Mae and Freddie Mac have been vital to the recovery, says Mark Zandi, chief economist for Moody's Economy.com.

"The reason the recession will end in the next few months is because of the policy response," he says. "Without those efforts the economy would still be deep in recession."

When will the recession end?

Zandi expects the recession to end sometime between August and October. His optimism comes from changes he sees in housing and the auto industry. "The housing collapse is abating and the downdraft in vehicle sales is moderating," he says.

But the economy won't roar back to life, he says. "It's going to be a slog through all of next year." Part of that is the expectation that unemployment will move into double digits — at least 10 percent — through much of 2010.

Johnson expects it to rise to 10 or 11 percent through 2010 and 2011.

Will the housing and auto industries continue to weigh down the economy?

In previous decades, such as the 1980s, the economy was heavily dependent on autos because a large percentage of cars were produced domestically and with domestic parts.

But because imported autos are so dominant now, Baker says, the economy won't get the same boost from the auto sector as it has during previous downturns.

It's a mixed picture when it comes to the housing industry. The Standard & Poor's Case-Shiller Home Price Index shows that the rate of decline in housing prices seems to have slowed in some places, but not across the board.

"I don't see any way prices don't keep falling at least through the rest of the year," Baker says. He expects that housing prices won't stabilize before year end and probably not until sometime in 2010.

Lower wages and fewer workers, coupled with declining house prices, virtually guarantee that consumer spending will keep dropping into the fall, Baker says. And that means the economy is likely to continue to struggle to turn around.

Consumers account for a major part of economic activity. When will their confidence return?

Consumer confidence took a turn for the worse in June after two consecutive months of gains. The Consumer Confidence Index decreased to 49.3 percent, down from 54.8 percent in May.

The percentage of consumers who said economic conditions are "bad" increased and they also expressed continued concerns about job security, according to the Conference Board, a nonprofit organization that compiles data on the marketplace.

Dennis Jacobe, chief economist for Gallup, which conducts its own polls on consumer confidence, says these numbers will also have an impact on consumer spending in the fall.

"Retailers have reason to worry about the back-to-school season," he says.

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