Job losses mar recovery, create woes for Dems

WASHINGTON — A distressed economy is widely blamed for President George H.W. Bush’s re-election defeat in 1992, and a decade earlier, for the loss of 26 House seats in midterm elections by Ronald Reagan’s Republicans. Yet in both instances recession had already ended or was winding down.

It’s a point not lost on President Barack Obama’s White House or Democrats headed into next year’s midterm elections. The stock market may be up, U.S. service industries may be recovering, banks may be lending again and housing prices holding. But one major piece of the recovery puzzle is still missing: a brighter employment picture.

And that’s bad news for the party in power, whether the recession is officially over or not.

Job losses are expected to continue at least into the middle of next year, likely driving the unemployment rate above 10 percent from 9.8 percent last month. It could take three or four more years for it to fall to normal levels.

The longest and deepest downturn since the Great Depression has claimed 7.2 million jobs since it began in December 2007. Analysts figure 750,000 more jobs could disappear over the next six months.

If you add in people who have stopped looking for work, or who are working part time when they want a full-time job, the unemployment rate is a whopping 17 percent, according to the Labor Department.

“If you’ve got an effective unemployment rate of 17 percent and if this goes on for any length of time, a year or more, then everyone’s cushion will run out,” said Republican consultant Rich Galen. “There are going to be serious implications, culturally and politically.”

Galen said it’s understandable that Republicans would use the state of the economy to pound Obama and Democrats who control Congress. Still, “it’s not something we should either make fun of, be amused by or play politics with,” he said.

Republicans already see a “jobless recovery.” In a letter to Obama and House Speaker Nancy Pelosi, House GOP leaders asked, “Where are the jobs?”

Firing back, White House chief economic adviser Lawrence Summers defended the administration’s efforts on the jobs front and wrote to the Republican leaders that Obama was “committed to not repeating the fiscal mistakes of the last eight years.” House Minority Leader John Boehner, R-Ohio, said Monday said stimulus spending and other Democratic initiatives “are the wrong approach.”

Another sign of continuing distress: Applications for Social Security retirement benefits are up 23 percent from last year, a much larger jump than in other recessions.

The surge is due to a rush of baby boomers filing for early retirement. Signing up for Social Security benefits as early as age 62 can be an immediate source of income for laid-off older workers, but it’s also a troubling sign of the scarcity of jobs.

Despite some signs of recovery, the economy remains fragile. Consumer spending — which powers two-thirds of economic output — remains weak. Yet the widespread view among economists is that the recession has ended and that the economy grew in the just-ended third quarter.

So how can it be over if things are still so bad?

A recession is most simply defined as a period when the gross domestic product falls for at least two quarters. It had been doing that since the July-September quarter of 2008, although most economists believe the GDP has now reversed course and rose in the past few months.

The Business Cycle Dating Committee of the National Bureau of Economic Research is generally seen as the authoritative arbiter for dating U.S. recessions. It takes other things into account besides GDP, including employment levels, real personal income, industrial production, and wholesale and retail sales.

It dated the beginning of the current recession as December 2007 — and hasn’t yet called an end.

Economists agree that unemployment is a lagging indicator and can remain high long after a recession is pronounced over, continuing to inflict pain on those still out of work or worried about their jobs. That why it’s hard for such workers to understand how the recession can be deemed over.

It’s an important political dynamic as 2010 midterm elections approach.

At some point, continued job losses could easily push the economy back into negative territory, for a “double-dip” recession.

Hedge fund manager Doug Kass, founder and president of Seabreeze Partners Management, questions the ability of the economy to mount a self-sustaining recovery under continued elevated joblessness and wage deflation. “The consumer remains the Achilles’ heel of the economy,” he wrote recently.

Republicans claim continuing job losses signal a failure of the $787 billion Obama-driven stimulus legislation. “That is not what the American people were promised,” said House Republican leader John Boehner of Ohio.

White House aides concede they missed the mark with their January estimate that the stimulus package would keep unemployment from rising above 8 percent. But they insist things would be far worse had the stimulus not passed.

White House Budget Director Peter Orszag suggested the stimulus package added 2 to 3 percentage points, on an annualized basis, to U.S. economic activity from April through September. “If the economy remains fragile, additional options will be considered,” he said in a recent interview with The Associated Press.

Among measures being studied by the White House and congressional Democrats: extending and expanding a $8,000 tax credit for first-time home buyers due to expire at the end of next month; and tax breaks for companies that add jobs.

Rob Shapiro, an economist who was a top official in President Bill Clinton’s Commerce Department, sees “substantial, continued job losses” for some time if the government doesn’t take more aggressive steps to foster job growth.

In the meantime, the Obama administration should “prepare the American people to wait a while for real results,” said Shapiro, now with a Democratic think tank called NDN.