Tuesday, October 6, 2009

The Crisis—I

- Sumedha Bajar (M.A. Economics, II Year)

The recession that started in United States of America in December 2007 has been dubbed as the worst slump in seven decades. What began as a financial crisis entered the real economy via the real estate sector and is making its presence felt in almost all the sectors of economy. The number of unemployed in the US has risen by 7.4 million and the unemployment rate itself has grown by 4.8 percentage points since the advent of the recession . Employment in the construction industry has contracted by 1.4 million, but starting early 2009, a larger share of monthly job losses shifted from residential to non-residential and heavy construction components.

US unemployment rate in August 2009 is now the highest since June 1983. The rate of unemployment after dipping to 9.4% in July rose again by 0.3 percentage points to 9.7% in August. Out of the 216,000 job cuts in August, 63,000 were in the manufacturing sector which brought the total factory jobs lost, after the recession began, to 2 million. Barring a few sectors like education and health services that continued to add jobs, the situation remains grim for the rest of the economy. Even government employment has been continuously declining over this period, bringing the total jobs shed in the economy after the slowdown started to 6.9 million.

The rise in unemployment rate in August has been partially accounted for by the return of around 73,000 jobless workers who had given up looking for jobs. And it is worth noting that the number of such discouraged workers in August, 2009 was 758,000 which is double the amount it was in August, 2008, hence, the actual number of unemployed is higher than the officially unemployed figures.

The $787 billion stimulus package that was rolled out by the US government to rescue the economy has been able to create and sustain 150,000 jobs in its first 100 days. But the persistently high unemployment rates since the start of the recession is wearing down the consumer confidence which is further causing a decline in the domestic demand. Basic macroeconomic theory states that weak consumer spending impedes recovery. Further, the growing joblessness situation in US and other advanced nations is already leading towards ‘creeping protectionism’ and this is only going to hamper the efforts to further the Doha Development Round. 

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