US Job Losses Grow:President Bush Speaks

March 7, 2008

US job losses in January and February were higher than expected indicating that the slowdown / recession is starting to bite.The retail sector lost 34,000 jobs, manufacturing 52,000 and construction 39,000. The net loss was a total of 63,000 jobs on top of the 22,000 lost in January. If the close to 489,000 workers who dropped out of the labour force in January and February had stayed put and continued searching for jobs instead of becoming discouraged workers unemployment would have risen to 5.1 % from 4.9 % . Instead the rate dropped to 4.8 %. Two consecutive months of net job losses is a definite sign of an impending or actual recession.
The stimulus package will begin distributing tax rebates in May and the incentives for business will become more widely known and accessed by spring so we should expect some positive responses in the economy by summer. In the meantime however the stock market continues to fall driven down by the bad news and the ongoing liquidity problems of the financial sector. In an effort to reverse some of the bad news and bad psychology(always more pessimistic than is rational in a downturn the mirror opposite of excessive optimism in a boom) President Bush spoke briefly today about the recession/slowdown reassuring Americans that the Government and Congress had acted intelligently by passing the stimulus package and stressing that it would   have a positive impact in the months to come. He is correct.

It may well be the case that as the Fed cuts interest rates further and pumps needed liquidity into the banking sector through its auctions of debt instruments that a more aggressive approach to relieving holders of troubled mortgages will be needed including as Ben Bernanke has sensibly recommended the banks reducing some of the liabilities to their most at risk mortgagees to relieve the pressure they are under.

To facilitate this the Fed must stay on course to cut rates further and the Federal Government should broaden its mortgage assistance programs. In addition low interest rates   and growing unemployment are always the best times for major capital infrastructure programs of which there is a great need throughout the United States( and in Canada and Mexico as well). The Congress and the President ought to revisit this issue of infrastructure soon.

The Canadian government ought to place the maximum pressure on the Bank of Canada to continue cutting interest rates to ensure that the Canadian dollar does not rise any higher above parity with the US dollar and that the spillover effects of the slowdown will be kept in check.There is no core inflation problem in Canada for the foreseeable future. We also need to address the problem of infrastructure investment far more aggressively than we have.