Our long-running worry that the economy’s suffering would get worse before it gets better finds ample support in this morning’s employment report for November. Nonfarm payrolls plunged by 533,000 last month, the U.S. Labor Department reports. That’s the steepest monthly decline since 1974 and the sixth-worse number on record going back to 1939.
The labor market, to be frank, is bleeding, and it’s not obvious that blood will stop flowing soon. The negative momentum has a head of steam—no question about it. Whatever monetary quivers the Federal Reserve has left to play should be deployed post haste. That includes dropping the Target Fed Funds Rate to 50 basis points, perhaps even to 25 basis points while ratcheting up efforts on so-called quantitative easing, which is to say the full array of unconventional monetary policies. With interest rates so close to zero, all that’s left with monetary policy are the irregular methods of injecting money into the economy. It’s not clear that such efforts will provide much additional stimulus, but at this point there’s little reason not to try.
The main front in the war to battle deflation and recession now shifts in earnest to Congress and fiscal stimulus. Alas, there’s a bit of a political issue tied to this idea at the moment. The economy can’t wait for President-elect Obama to assume the presidency late next month. Allowing the economy to fend for itself over the next 7 weeks risks letting an already troubling situation fester into an even deeper problem. The Bush administration needs to reach out to the Obama camp and the two sides need to work as one with the lame-duck Congress.