The nation’s economic focus is turning from saving the banking system to how to provide a rapidly rising tide of jobless with benefits and a road map to employment.
And, just as there was a flashing-red- light urgency to the banking crisis, economists say the same haste has to be taken to deal with what is becoming a massive lay-off problem. Dealing with the jobless has already become a priority for President-elect Barack Obama. Congress is now likely to enact a fiscal stimulus package, including extending unemployment benefits, in either its lame duck session or early in the new year.
The risk to the economy is that layoffs cause more Americans to tighten their belts. As they cut back on their purchasing, business reduces its production, laying off yet more workers.
“We are now entering a vicious cycle,” says economist Bob Brusca of Fact and Opinion Economics in New York. “It’s like a snowball going downhill. If you stop the snowball when it’s small, you can stop it. But if you wait too long, it gets too much mass and becomes dangerous.”
Even if Congress passes a fiscal stimulus package, economists still expect the ranks of the unemployed to continue to grow.
“I suspect it’s going to get worse,” predicts John Silvia, chief economist at the Wachovia Economics Group in Charlotte, N.C. “It will just take time. There is no quick solution.”
The latest evidence of the layoff problem came Friday when the Labor Department reported that the unemployment rate in October skyrocketed to 6.5 percent, its highest level since February 1994 and up from 6.1 percent in September. The economy shed 240,000 jobs, the second worst month of the year after September, when 284,000 jobs were lost.
How bad can it get? In a normal month, the economy needs to provide 125,000 new jobs. During a bad recession, Mr. Brusca says, the economy can shed as many as 500,000 jobs a month.