Last modified: Friday, December 5, 2008
Media advisory: IU economist available to discuss historic unemployment data
FOR IMMEDIATE RELEASE
Dec. 5, 2008
EDITORS: Today (Dec. 5), the U.S. Labor Department released statistics showing that employers cut 533,000 jobs in November, which was the most since 1972. The nation's unemployment rate rose to 6.7 percent, a 15-year high. Bill Witte, associate professor of economics and co-director of the Center for Econometric Model Research at Indiana University, is available to offer some perspective. He can be reached at 812-855-2080 (office) or witte@indiana.edu.
Below are comments Witte offered about today's announcement.
"These are the kind of job losses that you typically see at the worst stages of a recession . . . According to the NBER (National Bureau of Economic Research), it started a year ago now, so it's already been a long recession. We're only now just starting to see what ordinarily would be the worst of it. That suggests to me that this is following a pattern that's not particularly typical and ominously so."
Witte does not think that the economy has reached the bottom. "If bottoming out means that we're going to start to see better or positive numbers pretty quickly, I think that would be false hope. The economy's going to be headed down still for a while -- I think probably at least until the middle of next year -- before we really start to turn it around and move upward. Of course, we'll be moving upward at that point from a very low level, so there won't be a good economy (then).
"When we get back to where we were before this whole thing started could be years.
"What has happened is that the household sector has just decided that this is really a bad situation. Everyone is counting their pennies. Consumption is 70 percent of the economy, so when people start to do that, it has a broad effect. It's the old-style Keynesian multiplier. If people stop spending, then businesses stop producing and then they lay off workers, and that leads to even more entrenchment by households. And the whole thing spirals down.
"On the business side, with sales lousy businesses are reluctant to invest and, in addition, the financing problem is making it hard even for firms where there still is some growth.
On current and potential efforts to address the economy in Washington, Witte said, "On the financial side, all of the things that the Fed and the treasury have been doing has been putting out fires, like the thing you do in a forest fire when it's still going -- you try to keep it from spreading too much. You're not really trying to put out the fire initially, you're trying to control the limits of it, and that's what I think the financial side has been doing.
"I'm getting a little more pessimistic about the speed with which any kind of government action can have much effect."
