President Obama arrives with former Federal Reserve head Paul Volcker, chairman of the President's Economic Recovery Board, to introduce members of the team in the East Room of the White House
The U.S. economy lost 598,000 jobs in January, more than most economists expected and the biggest percentage decline since May 1980. That brought the unemployment rate to 7.6%, a level it last reached in the summer of 1992, according to data released by the Department of Labor on Feb. 6. Just one year ago, the unemployment rate was 4.9%.
President Obama seized on the dire numbers to renew his call for action on the stimulus bill that is currently bogged down in negotiations in the Senate. At an appearance to introduce his team of outside economic advisers, Obama said the job numbers signaled "an urgent and growing crisis" and called further delay on the stimulus bill "inexcusable." "If we fail to act," he said, "this crisis could become a catastrophe." (See the top 10 financial collapses of 2008.)
Indeed, the numbers suggest that the worst may well be yet to come. The overall unemployment rate, which lags what's going on in terms of economic production, tells us more about what has happened than where we're headed — and the forward-looking news is equally grim. On Feb. 5, the Labor Department reported that 626,000 people made first-time claims for state jobless benefits in the week ending Jan. 31, more than economists expected and the most since 1982. The total number of people collecting unemployment now stands at nearly 4.8 million, the most since at least 1967, though the U.S. had about a third fewer people then.
Those numbers came at the tail end of a brutal month of layoffs. This January's tally of announced cutbacks more than tripled that from the same month last year, according to worker-placement firm Challenger, Gray & Christmas. More than 240,000 positions were slated for elimination, a figure approaching the high-water mark of the last recession, 248,000 in January 2002. (See pictures of the recession of 1958.)
And we haven't seen the end of it yet. A survey of some 400 personnel departments by the Society for Human Resource Management found that 21% of respondents figure they'll make further cuts before the end of March. Job losses at large companies are expected to be the worst, with 34% of companies with more than 500 employees planning layoffs. Of the firms paring workforce, 56% say they'll let go of managers and professionals, 43% plan to cut hourly service workers, 27% will lay off skilled laborers and 12% anticipate trimming senior executives. (See who's to blame for the financial crisis.)
Harry Holzer, an economist at Georgetown University and the Urban Institute, also sees troubling news in the fact that the fourth quarter's measure of gross domestic product (GDP), or the value of all the goods and services the economy churns out, wasn't nearly as bad as economists had thought it would be: down an annualized 3.8%, compared with a predicted drop of 5.4%, according to a Reuters poll. Companies are still producing, Holzer explains, but since no one is buying, inventories are piling up. With a backlog of goods, firms will need fewer workers to keep making more. "That suggests we're getting into the worst of it now," says Holzer.
That lag means we've likely got a ways to go before unemployment peaks. GDP during the 1981-82 recession, arguably the worst since the Great Depression, started rebounding in the second quarter of 1982. Yet unemployment didn't peak until the very end of the year. When it did, 10.8% of the workforce didn't have a job. For the unemployment rate to get up that high today, we'd still have nearly 5 million more jobs to lose. But, of course, 10.8% is simply a number plucked from history. Records do get broken.