Economy Shrinks As Job Losses Continue to Mount

Downturn Severe Despite Some Stabilizing

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Eddie McNeely, 40, looks over paperwork in a preparatory course at an unemployment center in Washington Monday, March 16, 2009. McNeely lost his plumbing job in January 2009. New jobless claims fell more than expected last week, but continuing claims set a new record for the eighth straight week and few economists expect the labor market to improve anytime soon. (AP Photo/Jacquelyn Martin) (Jacquelyn Martin - AP)

A line of job applicants snakes through a ropeline to attend the CUNY Big Apple Job Fair Friday, March 20, 2009 in New York. The government said Thursday March 26, initial jobless benefit claims rose slightly last week while the number of people continuing to claim benefits set a record for the ninth straight week. (AP Photo/Mark Lennihan) (Mark Lennihan - AP)

A group of job applicants arrives at the CUNY Big Apple Job Fair Friday, March 20, 2009 in New York. The government said Thursday, March 26, initial jobless benefit claims rose slightly last week while the number of people continuing to claim benefits set a record for the ninth straight week. (AP Photo/Mark Lennihan) (Mark Lennihan - AP)

John Starek attends a National job fair at a hotel in Boston, Monday, March 23, 2009. Starek, who has been out of work for the past seven months, is looking for work in the manufacturing or supply industry. The government said Thursday, March 26, initial jobless benefit claims rose slightly last week while the number of people continuing to claim benefits set a record for the ninth straight week. (AP Photo/Stephan Savoia) (Stephan Savoia - AP)

Hundreds of prospective employees cue up in a serpentine line during a National job fair at a hotel in Boston, Monday, March 23, 2009. The government said Thursday, March 26, initial jobless benefit claims rose slightly last week while the number of people continuing to claim benefits set a record for the ninth straight week. (AP Photo/Stephan Savoia) (Stephan Savoia - AP)

Graphic shows change in weekly jobless claims and employment level (S. Dooley - AP)

By Neil Irwin

Washington Post Staff Writer
Friday, March 27, 2009; Page D01

The economy shrank even faster than thought at the end of last year, and job losses are continuing at a stunning pace, according to government data released yesterday, reminders of the severity of the downturn even as the economy shows hints of stabilizing.

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There have been some mildly optimistic signs for the economy in recent weeks, particularly a surprising jump in orders for durable goods reported Wednesday. But yesterday's data was evidence that even if those signs of improvement continue, the outlook for American workers is likely to remain bad for many months to come, and the recession is likely to be recorded as one of the most severe since the 1930s.

Gross domestic product, the broadest measure of the economy, fell at a 6.3 percent annual rate in the fourth quarter, the Commerce Department said yesterday, instead of the 6.2 percent decline earlier estimated. There were, however, some glimmers of hope behind the headline number; the report said that business inventories fell even more than originally thought. That means that if demand for goods rises, factories will have to get cranking again.

"The shelves are bare, so as soon as demand returns, you could see some real improvement," said Nariman Behravesh, chief economist of IHS Global Insight. "Businesses are really at the limit of how low their inventories can go."

Economists believe that GDP has plummeted further in the first three months of 2009, but if Behravesh's analysis proves accurate, it could rise again in the second half of the year.

There is less reason for optimism in the job market. Another 652,000 Americans filed for unemployment insurance benefits for the first time last week, the Labor Department said, up slightly from the previous week, and the number of people receiving those benefits continuously rose to an all-time high of 5.6 million.

"It's a long, long lag between the economy stabilizing and the labor market improving, unfortunately," said Kurt Karl, chief U.S. economist at Swiss Re. "We'll continue to see bad numbers from the labor market for some time." He said he expects that the nation will continue shedding jobs through most of 2010, though at a much slower pace than in recent months.

President Obama yesterday made a similar argument, trying to rein in expectations for a quick recovery, even though the government has taken extraordinary steps to contain the recession.

"It's going to take some time for the steps that we've taken to filter in the fact that the housing market is starting to stabilize a little bit. There's still a lot of inventory out there before people are going to actually start building new homes," Obama said at a "town hall" event on the economy at the White House. "At some point, people are going to start buying new cars again, but it's going to take a little bit of time for the automakers to get back on their feet."

There are early signs that some of the government's efforts are having an effect. The Federal Reserve, for example, recently announced that it would buy an additional $850 billion in mortgage-related securities, a move intended to drive down mortgage rates. Yesterday, Freddie Mac said that rates fell to their lowest levels in the 38-year history of its survey. The average rate on a 30-year fixed-rate mortgage last week was 4.85 percent, down from 4.98 percent the week before.

Lower mortgage rates are triggering a boom in refinancing activity. That, in turn, is leaving more money in Americans' pockets to spend on goods and services.

Today, the government will report on consumer spending and personal income for February; analysts expect it will show a mild drop in income and a 0.2 percent increase in spending. A rise in spending would indicate that, after sharply cutting back in the fall, consumers are no longer pulling back further, though they are far from spending at the levels they did a few months ago.

Even if consumers are showing a bit more confidence, there are some new headwinds. The price of oil rose to a four-month high yesterday, up $1.57 to $54.34 a barrel. Regular gasoline averaged $2 a gallon this week, up from $1.90 a month ago, according to AAA.