Investors received yet another indicator Monday that this is not your father's recession.

The global economy will likely contract in 2009 for the first time since World War II -- including a decline in trade - - the World Bank announced in its most recent report.

The most sweeping fiscal stimulus in a generation is about to be signed into law by President Obama. It amounts to $787 billion and includes tax incentives, infrastructure projects, renewable energy developments, and payment to state and local authorities.

However, investors appear to be skeptical as indicated by the performance of the markets today for a variety of reasons:

• Some estimate that as much as 75% of the spending will not reach the economy until 2010.
• There are questions as to how many jobs in the United States will actually be created.
• People are uncertain as to how productive the spending bill will be and how much is actually just wasteful "pork."

It looks like tomorrow could very well become yet another 'brace yourself Friday' or another edition of 'As The U.S. Economy Turns.'

Still, hopefully it won't become a new rendition of 'down goes the Dow' with another visit by our old friend, you guessed it - - Dow 8,000. But analysts and economists haven't ruled the latter out.

The reason? The December 2008 jobs report, to be released by the U.S. Labor Department at 8:30 a.m. EST.

December jobs data won't be pretty

President-elect Barack Obama, D-Illinois, and House Speaker Nancy Pelosi, D-California, said they are bracing for a 'sobering' jobs report, Reuters reported.

Sobering is one way to lower expectations: economists surveyed by Bloomberg News expect the December 2008 jobs report to show a loss of 500,000 jobs. If that occurs, the U.S. economy will have shed more than 2.5 million jobs in 2008 and a staggering 1 million jobs in the last two months alone, November / December 2008. It would also make 2008 the largest job loss year for the United States since World War II.

Economist Peter Dawson told BloggingStocks economists are becoming "very concerned" for two reasons. First, a trend line for job cuts has increased for more than six months. Second, ADP's (NYSE: ADP) private sector job report showed the loss of a staggering 693,000 jobs, and even though the ADP report has not correlated well with the Labor Department report, it still is setting off alarm bells in economists' circles.

Based on October wholesale and consumer price reports, July 2008 marked a shift from inflation into full-blown deflation. This has much to do with the declining price of oil, which in turn is related to the collapse of speculative buying of oil while shorting the dollar; the decline in demand resulting from a global downturn; and the failure of producers to cut supply fast enough.

However, as I posted, there's a vicious cycle underway which leads to:

1. Excess inventory,
2. Price cuts,
3. Capacity and job reductions,
4. Less spending power,
5. Lower demand -- followed by a return to step 1.

And with jobless claims at 542,000 and the price of oil down below $50, it's pretty clear that this cycle is well underway. What can the Federal Reserve do to turn this vicious cycle into a virtuous one? It is likely to cut the Fed Funds rate to zero or very close to it -- 0.25% -- in January. But in a 2002 speech, Bernanke said that there are other ways the Fed could try to boost overall demand, which would reverse the deflationary cycle.

Initial jobless claims fell to 356,000 to for the week ended February 2 from the previous week, but came in above the 344,000 consensus estimate, the U.S. Labor Department announced Thursday. Claims for the previous week were revised up 3,000 to 378,000.

Also, the four-week moving average jumped 11,000 to 335,000. Economists view the four-week average as a better indicator of unemployment conditions, as it smooths-out anomalies for strikes, holidays, or other idiosyncratic events.

The largest increases in initial claims for the week ending Jan. 26 were in Wisconsin, +2,325; North Carolina, +715; Maryland, +504; Virginia, +340, and California, +233. The largest decreases were in Michigan, -7,546; Illinois, -4,483; Florida, -4,127; Ohio, -3,038; and Texas, -2887.

Meanwhile, the number of continuing claims increased by 75,000 to 2.785 million from a revised 2.710 million for the week ended January 26, the latest period for which figures were available.

Economic Analysis: Another poor weekly jobless claims statistic, one that continues to show a deterioration in employment conditions. Further, the four-week moving average continues to rise and is approaching the U.S. Federal Reserve's danger zone of 350,000. The U.S. Federal Reserve considers a four-week average above 350,000 a signal of soft labor market conditions. In addition, the rise in continuing claims, which measures the seasonally-adjusted uninsured, to 2.785 million, also indicates a tepid job market. If jobless conditions continue to worsen, additional monetary and fiscal measures undoubtedly will be needed to stimulate the U.S. economy.

This one may make the record books for an approved, federal stimulus package, if it becomes law within a month.

U.S. Congressional officials from both parties and White House aides announced Thursday morning they have reached a tentative deal on an economic stimulus plan, an aide close to the negotiations said, Reuters reported.

"We have an agreement in principle," said the aide, who spoke on condition he not be identified. Plan costs were not immediately available.

The Democratic Party-led U.S. Congress and the Republican Party-led White House have been negotiating a $140-160 billion fiscal packaged aimed at stimulating the U.S. economy, which most economists believe is growing well below trend-growth levels. Many believe the economy is growing at about 1.0-1.5%, if it hasn't already fallen into a recession.

When Ben Bernanke testifies before the House Budget Committee today, he's expected to announce his support for a short-term economic stimulus package, as long as it's based on measures that are quick and temporary, according to the New York Times this morning. He's told lawmakers he won't comment on proposals to link a stimulus package to the permanent extension of President Bush's tax cuts.

Finally some political sanity. I wish Alan Greenspan had taken that stance as President Bush continued to cut taxes during a war. If Greenspan had we wouldn't have added so much to U.S. debt and this country would be in much better shape fiscally to get us through the current credit storm.

Bernanke's support for the short-term fix is critical to getting many lawmakers to accept a stimulus package even if it means adding to the U.S. deficit. Without it, Congress probably could not pass a veto-proof economic stimulus package. President Bush would likely veto anything that doesn't include a permanent extension of his tax cuts to try to bully the Congress into continuing his economic folly - paying for a war on future debt. Our children certainly will hate us for a long time if we continue to ignore the burden we're putting on them.