Pat Dollard

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Washington Times:

The end of the longest recession in recent history got pushed further off last month as employers eliminated nearly a half-million more jobs, unemployment rose to its highest level in 26 years and wage growth came to a standstill.

Thursday’s news from the Labor Department triggered a dive in the financial markets and cast a cloud over President Obama’s legislative agenda amid sinking approval ratings for his handling of the economy. For ordinary workers, the report renewed worries about record rates of job losses, shrinking wages and home seizures, despite what now appears to have been overblown hopes this spring for an impending economic recovery.

Big rallies in the financial markets had lifted spirits from March to early June, but many investors and consumers have grown disillusioned and unimpressed by the tiny statistical improvements in the economy that fueled predictions of a recovery.

“It’s too early to celebrate,” said David Wyss, chief economist at Standard & Poor’s Corp., adding he now expects a recovery will not start until the fall.

“The recession has proven to be much longer and deeper than expected,” he said. Not only are consumers still losing jobs and income at prodigious rates, but also their net worth has dropped 21 percent since the end of 2007 because of big drops in the value of their largest assets — homes and stock portfolios.

That leaves consumers in no shape to become the engine of growth that will pull the U.S. and world economies out of recession, as many economists have forecast. “The recovery will be delayed,” Mr. Wyss said.

Thursday’s report that job losses grew to 467,000 in June from 322,000 in May clinched the case for many who believe Wall Street markets and forecasters had gotten overly exuberant about the prospects for recovery.

After climbing more than 40 percent from its lows in March, the Dow Jones Industrial Average has been retracing its steps. The Dow fell another 223 points on the job news Thursday.

President Obama called the bleak job news “sobering,” but said he continues to be hopeful that the pace of job losses is falling off and the “recession is slowing.” The long and painful recession has caused a drop in voter approval of Mr. Obama’s handling of the economy from 59 percent in February when his economic stimulus bill was passed to 55 percent today, according to the latest Gallup poll.

“As I’ve said from the moment I walked into the door of this White House, it took years for us to get into this mess and will take us more than a few months to turn this around,” Mr. Obama said.

“The heavy loss of jobs in June is a warning that the road to recovery will be bumpy,” said Nigel Gault, chief U.S. economist at IHS Global Insight. But he still thinks a recovery is in the works, as revealed by recent reports showing a tentative bottoming and modest gains recently in housing and manufacturing.

“It will take much longer for the labor market to bottom out than for [economic output] and industrial production,” he said. “We expect job losses to continue throughout 2009, and the unemployment rate to peak at 10.3 percent” by early next year.

“The labor market is still in shambles,” said Harm Bandholz, economist at Unicredit Markets. He does not expect a quick or easy recovery.

The federal government joined most private employers in laying off workers last month, and many businesses appeared to refrain from the usual hiring during the summer season that provides jobs for vacationing college and high school students.

The fast-shrinking job openings, in turn, appear to have discouraged many people without jobs from even looking for work, prompting them to drop out of the labor force. That kept the unemployment rate from soaring as it has each month since the beginning of the year. Instead, the unemployment rate edged up to 9.5 percent from 9.4 percent – still a 26-year high.

For people who are still working, the outlook is also darkening, the employment report showed. Wage growth has fallen well below 3 percent on average, and the average work week in June actually fell to a record low of 33 hours. That means take-home pay barely budged from May levels.

Only the pace of job losses has slowed from 690,000 a month in the first quarter to 435,000 in the second. But the hemorrhaging of jobs continues to outpace any previous recession since the Great Depression.

The 6.5 million jobs lost in the current recession, which started in December 2007, already have erased all the job gains of the economic expansion from 2001 to 2007 and returned the overall employment level in the United States to 2000 levels at 131.7 million.

“Todays report marks the end of another terrible quarter for the U.S. economy,” Mr. Bandholz said. But a separate report from the Labor Department Thursday showed a recent flattening in new claims for unemployment benefits at around 600,000 a week, suggesting the pace of layoffs will continue to taper off through the rest of the year, he said.

Bernard Baumohl, president of the Economic Outlook Group, said he is sticking by his forecast that an economic recovery will begin shortly.

While wage gains have slowed to 2005 levels, consumer prices also have stopped rising and actually fell in recent months, adding to the purchasing power of consumers by increasing their incomes after adjusting for inflation.

“Real average hourly earnings for the year ending in June jumped by 4 percent,” he said. “This represents the biggest jump in purchasing power for Americans in nearly 40 years – and sets the stage for more consumer spending in the months ahead.”