- The Washington Times - Friday, March 6, 2009

The U.S. economy, which has shed 3.6 million jobs since the recession began, will lose another 3.4 million jobs before the worsening employment situation turns around, a leading economic forecaster predicted Thursday.

The Labor Department likely will report Friday that the economy shed 750,000 jobs in February, Mark Zandi, chief economist for Moody’s Economy.com, told reporters Thursday.

A job loss of that magnitude would be more than twice the size of any monthly job loss during the 1981-82 recession, the deepest postwar economic downturn. Since 1970, measured on a percentage basis, only the job loss of December 1974 would exceed a loss of 750,000 jobs today.

The February jobs report comes on the heels of Thursday’s Labor Department report showing that worker productivity declined 0.4 percent during the fourth quarter. The Commerce Department, meanwhile, reported that new orders for manufactured goods declined for the sixth month in a row in Januar

The U.S. is facing an economic crisis that is getting “measurably worse,” Mr. Zandi said.

Mr. Zandi, speaking at a weekly breakfast sponsored by the Christian Science Monitor, expects the U.S. economy to decline 2.5 percent in 2009. That’s more than double the 1.2 percent decrease projected by the Obama administration last week in its budget blueprint. While the administration predicts the economy will rebound at a 3.2 percent clip in 2010, Mr. Zandi expects it to remain “basically flat” next year.

“They have a rosy scenario for 2010,” said Mr. Zandi, who doesn’t expect growth to return until 2011.

Mr. Zandi’s economic forecasting firm, Moody’s Economy.com, considers 42 states to be in recession today and expects the economies of all 50 states will be declining simultaneously within the next year or so, unprecedented since the Great Depression, he said.

The unemployment rate, which was 7.6 percent in January, will likely peak at 9.5 percent during the second quarter next year, Mr. Zandi said. He did not rule out one month of double-digit joblessness, a condition that hasn’t occurred in more than 25 years.

By contrast, the unemployment rate peaked at 7.8 percent following the 1990-91 recession and 6.3 percent after the 2001 recession.

Mr. Zandi, who advised Republican Sen. John McCain’s presidential campaign last year, supported President Obama’s economic stimulus package. He also endorsed the president’s mortgage-modification and refinancing plan and the administration’s Financial Stability Plan.

Mr. Zandi said he wished the mortgage-modification plan would have placed much more emphasis on the write-down of mortgage principal, but he said the “collective psyche isn’t there yet” for such a bold and controversial step.

He also said “the collective psyche” wasn’t present yet for the Treasury to begin using taxpayer money to directly purchase toxic assets from financial institutions.

While he expressed support for Treasury Secretary Timothy F. Geithner’s Financial Stability Plan and twice called it “quite elegant,” he said he expects “Plan B” - the direct purchase of toxic assets - will eventually be implemented. The administration’s budget included $250 billion as a “placeholder” in its current budget to leverage the purchase of $750 billion in financial assets, if such a move becomes necessary.

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