The economy lost almost 600,000 jobs in January, accelerating the increase in unemployment to a 16-year high of 7.6%.  The news exceeded analyst projections, but apparently not by much, as the stock market advanced this morning despite the bad news:

The U.S. economy lost another 598,000 jobs in January, a larger than expected decline that highlighted a weak global economy and the pressure building on companies to cut costs and payrolls.

It is the largest one-month job loss since December of 1974, and pushed the unemployment rate to 7.6 percent, from 7.2 percent in December.

That is the highest unemployment rate since the fall of 1992, with 11.6 million people out of work — and would have gone even higher except for a slight decline in the number of people looking for work, itself a possible sign of economic weakness as people become discouraged from job-hunting. …

The figures released on Friday indicate broad weakness in the labor market, with losses spread throughout the economy. Manufacturing companies dropped 207,000 jobs — a more than 1.5 percent decline from the prior month — and construction firms shed 111,000. The service sector — long a stable source of job growth and touted as the country’s economic strength — lost 279,000 jobs, including 42,000 positions in the financial sector and 45,000 among retailers.

A service economy will take big hits in a recession.  People will still need to buy goods, such as food and clothing, but services can get postponed or put off altogether.  When manufacturing and construction rebound, services will eventually follow.

This report will put pressure on Congress to act, but probably in the worst possible way.  The government plans to seize capital in order to spend it when we need to keep capital in the markets to create jobs and businesses.  They will panic and pass the Porkulus Bill in the Senate without any heed to the CBO’s analysis that shows the net ten-year effect of the bill would be to depress GDP, not stimulate it.

FDR said, “The only thing we have to fear is fear itself.”  Barack Obama and the Democrats say, “THE SKY IS FALLING!  THE SKY IS FALLING!”  This is the time to act wisely, not in a panic.  Speaking of which, Wall Street indicators at the time I write this show all green.  The Dow is up 125 points, S&P up 11, and the NASDAQ up 22.  It looks like the only people panicking are Harry Reid, Nancy Pelosi, and President Obama.

Addendum: You have to love the Washington Post’s idea of balance.  Here’s the final paragraph:

Overall, Friday’s report is “yet one more demonstration of the fact that the rug has been pulled out from under working families in this country and it underscores the urgency of passing an effective stimulus package that matches the scope of the problem,” said Heidi Shierholz, an economist with the Economic Policy Institute, a liberal economic think tank.

The response from Heritage, Cato, or some other fiscal-conservative think tank?  They don’t provide one.  At least the WaPo properly identified the EPI.

Update: Some in the comments think that the CBO figures have been discredited.  Read the letter yourself, emphasis mine:

At your request, the Congressional Budget Office (CBO) has conducted an analysis of the macroeconomic impact of the Inouye-Baucus amendment in the nature of a substitute to H.R. 1. CBO estimates that this Senate legislation would raise output and lower unemployment for several years, with effects broadly similar to those of H.R. 1 as introduced. In the longer run, the legislation would result in a slight decrease in gross domestic product (GDP) compared with CBO’s baseline economic forecast. …

Most of the budgetary effects of the Senate legislation occur over the next few years. Even if the fiscal stimulus persisted, however, the short-run effects on output that operate by increasing demand for goods and services would eventually fade away. In the long run, the economy produces close to its potential output on average, and that potential level is determined by the stock of productive capital, the supply of labor, and productivity. Short-run stimulative policies can affect long-run output by influencing those three factors, although such effects would generally be smaller than the short-run impact of those policies on demand.

In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals.  The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive capital. In economic parlance, the debt would “crowd out” private investment.

And the more we spend now, the less capital we will have later, which will reduce production in the long run.