Unemployment Rising and Economy Still in Decline

For much of last week, it was possible to think that the economy was looking up. Various indicators, though weak, were not as bad as expected.

On Friday, reality bit back with the news that the unemployment rate spiked in March, to 8.5 percent, a 25-year high. The government’s report also showed that employers had shed 663,000 more jobs in March. Nearly two million jobs have vanished this year — 5.1 million since the recession began in December 2007. The ranks of the unemployed now stand at 13.2 million.

There is no longer any doubt that the current recession will be the longest yet in America since World War II. The previous record-holders — the contractions of the early 1970s and the early 1980s — each lasted for 16 months. As of now, the economy already has been in decline for 16 straight months.

The questions now are how much longer the recession will be and how much worse it will get. Measured by the labor market, the answer to both questions is “a lot.” That is because employers will continue to cut jobs as long as the economy is weakening and will resume hiring only once they are sure a recovery is under way.

In this recession, the traditional paths to recovery are especially blocked. Economic rebounds — especially from steep declines — are generally led by recovery in the housing market. This time, housing is unlikely to provide the spark. By prudent estimates, housing sales and prices will not begin to turn up appreciably until 2010 at the earliest.