Economists expect the rapidly spiraling downturn to be the longest, and possibly the most severe, since the end of World War II.
Despite months of rescue efforts, hundreds of billions of dollars in government spending and an avant-garde apparatus of financial tools, the U.S. economy has only worsened, and at a faster rate than nearly anyone predicted.
This recession, which officially began in December 2007, now appears certain to be the longest downturn — and possibly most severe — since the end of World War II, as evidenced by last week’s grim reports on jobs, sales and public confidence.
The reports signaled that even after 11 months — more than the entire length of the last two downturns — this recession has only now entered its fiercest phase, and economists say the pain will not end soon.
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“For the average American it’s going to be devastating for the next six to 12 months,” said Bernard Baumohl, chief global economist at the Economic Outlook Group, a research and forecasting firm. “I have not seen anything particularly hopeful right now, which tells me we have a ways to go.”
In an appearance Sunday on “Meet the Press,” President-elect Obama promised a stimulus plan “large enough to get the economy moving,” but conceded that “things are going to get worse before they get better.”
Some analysts had hoped the worst was over after October’s market shocks, which spooked consumers and choked off credit.
Instead, Americans retrenched even further in November, sending sales at the nation’s retailers tumbling to the weakest level in more than 35 years and leading Detroit automakers to record their worst sales in a quarter-century.
Manufacturers have not seen conditions this bad since 1982.
The decline in spending is likely to continue, depriving the economy of its primary growth engine, as layoffs continue to mount. Half a million Americans, from financial analysts to factory workers, were dismissed in November alone. Rarely has a labor downturn affected such a broad swath of income levels.
Most frightening of all is that the worst job losses may be yet to come. If history is any guide, millions more Americans could lose their jobs before businesses start to expand again.
The worst jolts to the labor market tend to be only the precursor of six months or more of additional layoffs. Employment suffered a major contraction in December 1981 and January 1982, and workers did not see a stable market for about 10 months, including another big round of layoffs in July 1982.
A similar pattern occurred in the other great postwar recession, in 1974, when several months of a stagnant labor market were followed by a violent contraction over the new year. After the worst month, December 1974, the job market took about six more months to stabilize.
So in the best case — where November’s 533,000 lost jobs signals the bottom of the labor contraction — workers could face six more months of hard times.
“We’ll be lucky if the unemployment rate is below double digits by the end of next year,” said Jared Bernstein, who will be the chief economic adviser to Vice President-elect Joseph Biden. “Even if the economy improves, the growth won’t be enough to rehire laid-off workers, much less absorb those coming into the labor force.”
There is no guarantee, of course, that November’s numbers will be the worst.
Now that the full magnitude of the crisis is apparent, companies are tightening their belts further. Just last week, AT&T, CreditSuisse, DuPont and Viacom announced deep cuts. Layoffs are expected in the financial and automotive industries after the new year, and some economists predict the economy could lose as many jobs in the first six months of 2009 as in all of 2008.
Nearly 2 million jobs have been lost since the start of the recession, two-thirds of them since September. Still, some forecasters say the pessimistic talk may be overblown and possibly a problem in itself.
“The numbers are giving us a darker view than is actually the case,” said Chris Varvares, president of Macroeconomic Advisors, adding that some of the economic indicators that have been flashing red are based on subjective surveys of businesses and households.
“There is such a thing as self-fulfilling prophecy,” he said.
Even people still collecting a paycheck are likely to save more, cut back on luxury items and restaurants, and channel more income into savings accounts for college and retirement.
“Even Americans who still have a job are looking around and saying, ‘Well, you know, how much longer?’ ” said economist Joshua Shapiro.