Job losses pile up on Recession

Source: Reuters

Writeen by Emily Kaiser

WASHINGTON (Reuters) - Authorities increased the flow of public funds into their economies on Tuesday as a jump in Spanish unemployment and weak retail sales in the United States and Germany provided the latest proof of a severe, synchronized recession.

The Federal Reserve extended agreements with several other central banks to meet a global demand for U.S. dollars as policy-makers tried to keep credit flowing to the companies and consumers that power the economy.

Australia's central bank slashed short-term borrowing costs by a full percentage point and the government announced that it was more than doubling the size of an initial stimulus, bringing the total package to more than $49 billion, or nearly 8 percent of the economy's annual output.

"The Australian economy has probably slipped into its first recession since the early 1990s," said Jay Bryson, global economist with Wachovia.

Bryson said the latest government measures should help limit the severity of the downturn, but if the global recession worsens, it would hurt Australia's exports, "which could lead to another down-leg down-under."

U.S. lawmakers were debating a nearly $900 billion stimulus plan that was likely to receive Senate approval later this week after a contentious, largely partisan fight over how best to spend the money.

President Barack Obama has been trying to convince Americans that the spending is urgently needed, but with many people still seething over a $700 billion bank bailout, the stimulus package has met with some resistance.

A U.S. official said on Monday the Obama administration would likely lay out a framework early next week for dealing with banks overloaded with mortgages and other loans, which are defaulting at an alarming rate.

In Japan, the central bank said it would buy up to 1 trillion yen ($11 billion) worth of shares held by banks in a move analysts said was aimed at easing the burden on financial institutions' balance sheets.

Stocks on Wall Street opened up modestly as Congress' deliberations left investors cautious and anxious over any evidence that the stimulus package might be hitting a snag. Japan's Nikkei stock average closed down a touch, while Europe's FTSEurofirst 300 index was weaker.

SPANISH UNEMPLOYMENT SOARS

Spain, one of the hardest-hit economies in the 16-nation euro zone, received more bad news on Tuesday as figures showed the number of registered jobless surged by nearly 200,000 in January, the tenth straight rise and the biggest since records began in 1996.

The jump took the unemployment rate up to 13.9 percent, the highest level in the broader European Union. The total number of unemployed in Spain swelled to 3.33 million, just below the level in Germany, a country with nearly double the population.

"It's going to get much, much worse," said Jose Garcia Zarate from the 4cast consultancy, noting that unemployment was spreading from Spain's battered construction sector to other parts of the economy.

Further evidence of flagging European activity was evident in producer price data for the euro zone, which fell a steeper-than-expected 1.3 percent in December.

The collapse in inflation after a price scare last summer should give the European Central Bank more leeway to reduce interest rates, although economists expect the central bank to hold steady at its next meeting on Thursday.

News from Europe's biggest economy was also negative. Data from the Bundesbank showed a 0.7 percent drop in German retail sales in December, disappointing economists, who had expected a Christmas-sales boost. The country's HDE retail association forecast sales would fall in real terms in 2009.

"The economic crisis will hit our sector, but when, how hard, and for how long is uncertain," HDE Managing Director Stefan Genth told a news conference.

A measure of U.S. retail sales showed that January ended on a down note, with sales off 2.7 percent in the final week of the month. Redbook Research said for the month as a whole, sales were off 2.3 percent from a year earlier.

However, there was a glimmer of hope in the downtrodden U.S. housing market. The National Association of Realtors' Pending Home Sales Index rose for the first time since August.

"It's a real shot in the arm for sentiment," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "I'm sure it's foreclosure-driven, so it could be a hollow number. But right now, it's improving sentiment."

(Reporting by Wayne Cole in Sydney; Rob Taylor in Canberra, Michael Perry in Sydney, Hideyuki Sano in Tokyo, Kevin Yao in Singapore, and Noah Barkin in Berlin; Editing by Dan Grebler)