So apparently the economy completely went into the shitter fourth quarter.
"It's premature to say we need another stimulus, but the economy is performing much worse than when [the law] was signed, and the odds are increasing that we'll need a bigger policy response," said Mark Zandi of Moody's Economy.com, who has advised Democratic lawmakers. "What we've learned is policy has been a step behind this whole downturn. It's important to get a step ahead."
The International Monetary Fund yesterday urged governments worldwide to consider additional fiscal stimulus, noting that the public sector must help prevent a collapse of confidence.
Consumer confidence in the U.S. economy has already been driven dangerously low by layoffs across nearly every sector. Last month alone, employers slashed 651,000 jobs from their payrolls, and job losses in December and January were far worse than originally reported, according to revised data released yesterday. Since December, employers have cut jobs at the sharpest pace since 1975.
But even the current job-loss figures mask the degree of pain among American workers. A broader measure, which includes people who want a job and have given up looking and those working part time but who want full-time work, rose nearly one percentage point, to 14.8 percent.
“I think what it shows is neither the government nor many economists have a grasp yet of how bad the economy really is right now,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “We can’t get our arms around what’s going on.”
There is little reason to think conditions for workers will get better in the coming months and many reasons to think the steep decline will continue; employment tends to lag behind overall growth in the economy by several months, and the nation, by all accounts, remains in recession. There have been some signs lately that consumer spending is stabilizing at low levels, but even if that trend holds up, it would probably take until summer for job losses to slow.
Economists are now calling into question whether the intricate suite of policies crafted by Congress, the Obama administration and the Federal Reserve are bold enough to deal with the scope of the economic damage.
“Up until the third quarter, we thought we were on track for a relatively moderate recession, but then in the fourth quarter, everything fell apart,” said David Wyss, chief economist at Standard & Poor’s.
The Obama administration’s budget, released in late February, assumes that the jobless rate will average 8.1 percent this year. That now appears unlikely, which in turn could make officials rethink their approach to the crisis.
Regulators, for instance, are conducting “stress tests” of major banks so that the Treasury Department can better determine what kind of financial support they might need. Those tests assume that, in a particularly bleak scenario, the unemployment rate will average 8.9 percent this year and 10.3 percent next year. But if the government projections on unemployment turn out to be too rosy, officials could underestimate the trouble banks are in. A higher unemployment rate means greater losses for banks because more people default on their loans.
