Issue of the week: As unemployment rises, optimism fades

Last week

The case for economic optimism has collapsed, toppled by the May unemployment report, said Michael Mandel in For months, many economists and business leaders have argued that the U.S. recession would be a mild one, if it materialized at all. But last week’s report from the Labor Department, showing that the economy shed 49,000 jobs—the fifth consecutive monthly decline—shattered hopes that the U.S. economy would escape a prolonged stretch of stagnant or even negative growth. A separate report showed the unemployment rate jumped half a percentage point to 5.5 percent—the steepest one-month increase in 22 years. And the deeper you dig into the reports, the scarier they look. If not for hiring in the fields of health care, social welfare, and education, “we would be in a spectacular downturn.” Virtually every other job category “is in free fall.”

These job cuts don’t occur in a vacuum, said Daniel Gross in Newsweek. The ripple effects are already spreading through the economy. Consumers are slashing their spending, whether they’re on the unemployment line or worried that they’ll wind up there before long. Unable to meet their mortgage payments, many jobless people will see their homes go into foreclosure, adding to the inventory of unsold homes and further delaying the housing sector’s recovery. Layoffs in housing-related sectors such as construction and home furnishings will accelerate, further fueling the drop-off in consumer spending. “As a result, the consumer-driven economy may not bounce back as rapidly as it did in the fraught months after 9/11.” And without the kick that consumer spending provides, the overall U.S. economy simply cannot grow.

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