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Recession Picking up Speed

ECRI's Achuthan appeared on The NewsHour with Jim Lehrer to discuss the quickening pace of job losses as the recession intensifies, and what to look for going forward.

Read an excerpt of the transcript below:

U.S. employers cut 533,000 jobs in November, the most in 34 years, pushing the unemployment rate to 6.7 percent. Columnist Steven Pearlstein and economist Lakshman Achuthan examine what the new job figures indicate.

JIM LEHRER: Ray Suarez has our jobs story.

RAY SUAREZ: Today's job report provided the strongest signs yet of a powerful recession: 500,000 jobs lost in November; 1.2 million lost in the last three months alone.

News of the rising unemployment rate, heading towards 7 percent, came amid a steady drumbeat of bad business news. Foreclosures numbers are up again. Nearly 1 in 10 Americans is now at least a month behind or facing foreclosure. And November retail sales were anemic at nearly every level, dropping nearly 3 percent...

RAY SUAREZ: We take a closer look now at the job loss news and what it signals about this recession with Lakshman Achuthan, managing director of the Economic Cycle Research Institute, an independent forecasting group; and Steven Pearlstein, an economics columnist for the Washington Post.

Lakshman Achuthan, what does that main number, non-farm payrolls dropped by 533,000, tell you about the state of the economy?

LAKSHMAN ACHUTHAN, Economic Cycle Research Institute: Well, that in the recent rearview mirror, this economy was falling apart at a faster pace than any time during this year-long recession.

That is the key thing here; we're looking slightly backwards and we are accelerating to the downside. It doesn't tell us a lot about what we're going to run into in the next few months. For that, we need to look at forward-looking indicators, which also falling through the floor.

RAY SUAREZ: Steven Pearlstein, we also had large numbers of people leaving the workforce all together.

STEVEN PEARLSTEIN, The Washington Post: About 600,000 people got discouraged, probably, and left the workforce, or most of them. And we had also nearly as -- 400,000 workers who were working part-time, additionally, working part-time last month involuntarily. They would have rather had a full-time job and all they could get was part-time.

So if you add up the sort of marginal workers, marginally employed workers, or people who discouraged or people who are underemployed, you're dealing with a sort of underemployment and unemployment rate of more than 12 percent, according to the Department of Labor.

RAY SUAREZ: And how does that mesh with what Lakshman just pointed out of picking up the pace, an accelerating shedding of jobs?

STEVEN PEARLSTEIN: The acceleration is something that, in many of these categories, we haven't seen for 40, 50, 60 years.

RAY SUAREZ: So, Lakshman Achuthan, given the numbers as a whole, how come forecasters were so caught off-guard? Many of them, the sort of consensus number was 300,000-plus, 325,000 jobs lost, and they were off by quite a margin.

LAKSHMAN ACHUTHAN: Right, right. Forecasters aren't very good at dealing with recessions. That's just the way of the whole group of forecasters, nothing personal to anybody.

And the second thing I think is that a lot of forecasters are kind of business or Wall Street types, to a large extent, and they've been quite impressed by the size of these bailouts, of course, to the financial sector, but also other types of bailouts and rate cuts and pretty much think that must do it, that must solve the problem. Therefore, there will be a recovery just over the horizon.

However, of course, the business cycle doesn't work that way. Once it starts, once a vicious cycle -- a business cycle is a vicious cycle, where sales fall, production falls, jobs fall, incomes fall, and then sales pull down. We are in that cycle. It's revving very fast.

And this one is quite nasty, because the home price downturn is making the credit markets not allow all the stimulus to come through to the broad economy. And as we lose more jobs, foreclosures go up, home price goes down, the credit crisis remains.

RAY SUAREZ: Forecasters very impressed with the measures, but so far not people who hire people? Are they not impressed with what's been done so far to create liquidity? What's -- go ahead, Steven.

STEVEN PEARLSTEIN: What's been done has been focused on the financial system and just to try to keep it from freezing up. And a lot of money has been committed, and it has done that. It's not frozen up any more, but there's not much lending going on.

And part of the problem, whether you're talking about the financial sector or the real economy, is what economists like to refer to as pushing on a string. If I pull on a string, something at the end of the string, I can pull it along. But if I try to push the string, it doesn't work very well, as everyone knows.

And the problem now is largely psychological. You can give people money, and they'll save it. You can put money into banks, but they'll only lend it to people who they think is a real safe risk if the economy gets worse. Well, businesses -- well, there aren't a lot of those.

And so one of the problems with stimulus at this point is that there's a lot of pushing on the string, if you try to do it that way. And that's why I think what you're going to see a lot of the conversation shifting is, what can the government do directly to affect mortgages? What can the government directly do to affect employment?

Well, what you can do with employment is you can hire people. What you can do with mortgages is you can pay off mortgages or you can give the lender some money so he reduces the principal and the interest payments.

So we're going to have to do that as direct things now, because the channels by which stimulus gets to people are clogged or, as I say, you run into the pushing of the string problem.

RAY SUAREZ: Lakshman, is there a degree to which job-cutting can kind of take on a life of its own and go on almost like panic selling, where people shed payroll just because they're so fearful of what's coming in the next couple of months?

LAKSHMAN ACHUTHAN: Sure. And we will also make an error in pessimism, just the same way we made an error in optimism a few years ago. And we're in the midst of that now.

You're seeing very large announced layoffs that will feed into the jobs reports in the months ahead, which will also be kind of alarmingly weak. And that is a very -- right now, it's survival of the fittest.

You have to batten down the hatches as a business or a household and ride out this recession, and there's no end in sight. That's the bad news. The good news is, we can't see that far.

RAY SUAREZ: No end in sight, Steven? We don't get to the bottom faster when we do this sort of revved-up deceleration of the economy?

STEVEN PEARLSTEIN: We will get, actually, there faster. But, you know, I don't know -- you know, fast is a relative term. How about six months of 500,000 jobs a month or 3 million jobs between now -- between last month and May and June? That's quite possible, Ray.

RAY SUAREZ: But that doesn't shorten the recession?

STEVEN PEARLSTEIN: No, because -- sometimes recessions, you know, I hate -- sometimes recessions are sort of fast down and fast up. That's not going to be this one. Sometimes they're slow down and slow up.

What we're going to have is a fast down and then a long period of bouncing along the bottom. And that's because there's a lot of sort of adjustment to a lot of the imbalances in the global and the U.S. economy that have to be worked out, so we're going to probably go down fast, and then we're going to be on the bottom for a while.

RAY SUAREZ: A lot of times, Lakshman, economists come on the program and talk, as you opened, by saying that we were looking in the rearview mirror, looking over our shoulders at November and making judgments about job activity. It's described as a lagging indicator.

Is there a point at which job loss becomes a leading indicator and people stop buying things, start making more restricted economic decisions in their own household, even if no one has lost a job, because so many others are?

LAKSHMAN ACHUTHAN: Well, yes, and that actually shows up in the leading indicators. There are sets of leading indicators of the economy that you can monitor quite easily. And there's even weekly versions that are still accelerating down at the fastest pace on record since 1949.

These are key drivers of the cycle, things about confidence, things about job expectations, the housing market, profits growth, productivity, prices. All of these are collectively still moving in the downward direction.

And so eventually that will run its course, as Steve suggested. We will have a lot of pent-up demand that will join with prices that are attractive, alongside finally some job growth, as businesses get to a profitable business plan so that they can again begin hiring.

But the key here is, if we have a U-shaped or an L-shaped, one of these soft recoveries, that's likely to be a jobless recovery, which is not going to do much for home prices, which is at the epicenter of everything that ails us.

And so we really do need to, even though it's hard, work on a V-shaped recovery. Otherwise we're going to be having this discussion for many, many years.

RAY SUAREZ: Weren't the last couple of recoveries, Steven, slow to add jobs, even as business activity picked up?

STEVEN PEARLSTEIN: Yes. And that's because, like this one, they started with an asset bubble, a stock market bubble or a real estate bubble, something like that. So that tends to be the characteristic of that.

But they were nowhere near as deep as this, Ray. And that's -- you know, I mean, it's an order-of-magnitude difference.

RAY SUAREZ: Steven Pearlstein, Lakshman Achuthan, thank you both.