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NEW YORK -- The recession, which officially began in December 2007, appears certain to be the longest downturn—and possibly most severe—since the end of World War II, as evidenced last week by reports on jobs, sales and public confidence, according to a report in the New York Times.
Even after 11 months, more than the entire length of the last two downturns, this most recent recession has only now entered its fiercest phase, and economists said the pain will not end soon, the newspaper reported.
"For the average American it’s going to be devastating for the next six to 12 months," Bernard Baumohl, chief global economist at the Economic Outlook Group, a research and forecasting firm, told The New York Times. He added: "I have not seen anything particularly hopeful right now, which tells me we have a ways to go."
In an appearance Sunday on "Meet the Press," President-elect Barack Obama promised a stimulus package "large enough to get the economy moving," but conceded "things are going to get worse before they get better."
Some analysts hoped the worst was over after October’s market shocks, which spooked consumers and choked off credit. Instead, Americans retrenched even further in November, according to the report, sending sales at the nation’s retailers tumbling to the weakest level in more than 35 years. Manufacturers have not seen conditions this bad since 1982.
The decline in spending is likely to continue, depriving the economy of its primary growth engine as layoffs continue to mount, the report stated. Half a million Americans—from financial analysts to factory workers—were fired in November. Rarely has a labor downturn been so widespread, the Times reported.
The worst job losses may be yet to come, according to the newspaper. Millions more Americans could lose their jobs before businesses start to expand again.
Jolts to the labor market tend to be only the precursor of six months or more of additional layoffs, The New York Times reported. When employment suffered a major contraction in December 1981 and January 1982, workers did not see a stable market for about 10 months, including another big round of layoffs in July 1982.
"We’ll be lucky if the unemployment rate is below double digits by the end of next year," Jared Bernstein, who will be the chief economic adviser to Vice President-elect Joe Biden, told the newspaper. "Even if the economy improves, the growth won’t be enough to rehire laid-off workers, much less absorb those coming into the labor force."
Some economists predict the economy could lose as many jobs in the first six months of 2009 as the entirety of 2008. Nearly 2 million jobs have been lost since the start of the recession last year, two-thirds of them since September.
Still, some forecasters said the pessimistic talk may be overblown, and possibly a problem in itself. "The numbers are giving us a darker view than is actually the case,” Chris Varvares, president of research firm Macroeconomic Advisors, told the paper, adding some of the economic indicators that have been flashing red are based on subjective surveys of businesses and households.
"There is such a thing as self-fulfilling prophecy," he said.
Americans who are lucky enough to still collect a paycheck are likely to save more, cut back on luxury items and restaurants, and channel more of their income into savings accounts for college and retirement.
"Even Americans who still have a job are looking around and saying, ‘Well, you know, how much longer?’" Joshua Shapiro, chief domestic economist at MFR, a research firm, told the newspaper.