Jobless data shift recession debate to how to get out

Washington: A second straight month of job losses all but ended the debate over whether the US economy has slipped into recession. Now the question is how to get out.

"Turn out the lights. The party's over. We are in a recession," said Joseph Brusuelas, chief US economist at IDEAglobal in New York.

Don't count on debt-laden households to spend their way back to growth. As for banks, they are preoccupied with cleaning up their balance sheets after seven months of credit turmoil, which means they are unlikely to throw open the cash spigots. The federal government is mired in debt as well.

All that adds up to a protracted period of deleveraging - fancy word for paring debt - and perhaps an equally long period of subpar US economic growth.

While most economists still believe that the economy will rebound in the second half of this year as US Federal Reserve interest rate cuts and government tax rebates kick in, some are starting to push back the recovery date into 2009.

US employers cut 63,000 jobs last month, according to Labour Department data released on Friday. That followed a loss of 22,000 jobs in January. December's job growth was only half as big as the government had earlier reported.

Economists even found bad news in the fact that the unemployment rate fell to 4.8 per cent from 4.9 per cent, noting that this was merely the result of a steep drop in the size of the work force because more people gave up looking for jobs.

Employment holds the key to the US economy because jobs mean paycheques, paycheques mean consumer spending, and spending accounts for about 70 per cent of the economy.

"The debate should no longer be about whether there is or is not a recession, only about how deep it will be," said Nigel Gault, chief US economist with Global Insight in Lexington, Massachusetts.

Crisis: Strained consumers

Consumers were already under strain from the slumping housing market and rising costs for food and energy. A report on Thursday showed that household net wealth fell for the first time in five years. The savings rate has hovered around zero for several months.

With credit market turmoil prompting banks to tighten lending standards, consumers have had a tougher time qualifying for cheap mortgages, auto loans and home equity lines. That suggests households will cut spending.

- Reuters