Is the U.S. Economy Headed for a “Jobless Recovery?”

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By Don Miller
Associate Editor
Money Morning

Could the U.S. economy be looking at a "jobless recovery?"

After the worst financial crisis since the Great Depression reached its apex late last year, the U.S. economy has shown signs of life in recent months. Stock prices have soared. The housing market – once in veritable freefall – seems to be bottoming out in preparation for an eventual upsurge. And just last week, the government said that businesses cut jobs in May at the lowest rate in six months, a report that offered encouragement both to investors and to the millions of U.S. workers who have lost their jobs.

But U.S. Federal Reserve Bank Chairman Ben S. Bernanke threw cold water on hope for a full-blown economic rebound when he hinted that the U.S. labor market could well be facing a jobless recovery – an upturn in which the economy and corporate profits advance, but virtually no new jobs are created to compensate for years of layoffs.

Just this week, economists at the Federal Reserve Bank of San Francisco said they see signs that the current turnaround could mimic the aftermath of the 1990-1991 recession – a wheezy, drawn-out recovery with little hiring that means years of additional problems for U.S. workers.

"This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate," the Fed economists wrote.  "This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing work forces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates."

Unemployment Damage Widespread

Alongside other economic indications of a stabilizing housing market and rising consumer confidence, the unemployment figures offered a glimmer of hope that we may be on the cusp of an economic turnaround and the end of job destruction.

But it's highly unlikely this economy will produce meaningful job creation anytime soon.  The financial fallout from the biggest recession in 60 years is likely to be so costly and so pervasive that new-job creation is likely to be virtually nonexistent for years to come, particularly in the manufacturing and construction industries.

The U.S. Labor Department reported that the economy lost "only" 345,000 jobs last month, significantly lower than the 520,000 that analysts expected and the first time since October that job losses didn't increase.

But even though the latest report may be an improvement, the fact is that companies slashed jobs during the latest recession at a rate that's been rivaled only a couple of times since the Great Depression. Indeed, the Labor Department said that:

  • The U.S. economy has lost more than 6 million jobs since the recession began in December 2007 – meaning nearly one out of every 20 jobs was eradicated.
  • The unemployment rate now stands at 9.4%, the highest since 1983.
  • A total of 14.5 million Americans are now unemployed. The number of long-term unemployed (those without jobs for 27 weeks or more) increased by 268,000 to 3.9 million and has tripled since the start of the recession.

But even those statistics – as grim as they seem – don't tell the whole story.

As reported previously in Money Morning, the "official" employment rate doesn't account for workers that have been switched from full-time to part-time jobs. And it also doesn't include "marginally attached" workers – people who have given up job-hunting altogether.

If you added those unfortunates to the government's jobless tally of 9.4%, the "real" unemployment rate would stand at a staggering 16.4%.

That's the worst showing since the 1981-1982 recession when the official jobless rate peaked at 10.8%, which was the worst to hit the labor market since the Great Depression.  A total of 2.8 million jobs disappeared in that downturn, but the labor market was much smaller back then.

Unfortunately, the nature of this recession makes it likely things will get worse before they get better.

As two of the so-called "Big Three" U.S. automakers – General Motors Corp. (OTC: GMGMQ) and Chrysler LLC – attempt to navigate their way through the Chapter 11 bankruptcy process, they are set to close more than a dozen manufacturing plants and to cut another 32,000 jobs. Any moves that GM and Chrysler make will likely also have to pass muster with the Obama administration, which made loans to both of those carmakers.

Other major U.S. employers are likely to follow suit as they continue to reduce inventories and cut back on capital investment. That leaves most economists predicting that even the official jobless rate will top 10% by year-end.

An Economic Recovery May Not Bring New Hiring

So what happens to the labor market when the layoffs end and the economy starts to grow again?

All indications are that the road to recovering the millions of job lost during this recession will be a bumpy one.

Employers remain skittish as they slowly recover from the biggest economic upheaval since World War II and are already saying they will be cautious about replenishing payrolls anytime soon.  And just the sheer numbers of people on the street dictates that it will take some time to bring even a portion of them back into the work force.

But to get to the heart the matter – the one factor that will keep the job market moribund for some time – analysts point to the bubble-bursting events that let the air out of the gigantic auto and housing sectors, the economic engines that drive manufacturing.

"It will take a recovery in automobiles and housing for the manufacturing sector to once again prosper," Norbert J. Ore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee, told The Kiplinger Letter, noting those sectors have shed more than 1.5 million jobs in the past two years.

And despite the government's monumental stimulus program to create 3 million jobs in the next two years, those critical sectors are likely to face moribund prospects until at least 2010 – and perhaps even longer.

"It's going to take five or six years for homebuilders and automakers to fully recover from this recession, and it may take longer," says Martin Hutchinson, a Money Morning contributing editor who has written extensively about the current downturn. "You're not going to see aggressive hiring in those industries for a good while."

Hutchinson says the automobile business is in particular difficulty from outsourcing.

"A great deal of the cutting-edge technology associated with the U.S, automobile business is currently being outsourced to other countries, which will further hinder product development and sales for that sector and constrain future hiring," Hutchinson said.

Federal Chairman Bernanke also says that the labor markets may continue to suffer for some time.

In a speech to Congress on May 9, Bernanke pointed to lack of consumer spending and weakening demand for commercial and industrial loans as constraints on future hiring.

"Even after a recovery gets under way … we expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly," Bernanke told U.S. lawmakers.  "In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes."

2001 Recession – Déjà vu All Over Again

This won't be the first jobless recovery the U.S. economy has experienced.

In the 2001 recession, 1.6 million jobs were slashed. Unfortunately, the end of that downturn didn't bring an end to the job cuts: In the year that followed the recession's conclusion, another 562,000 workers lost their jobs. And in the 12 months that came after that, 193,000 more workers lost their jobs.

It wasn't until 2004 that more than 2 million new jobs were finally created.

In fact, the only job growth we're seeing now is in healthcare and education where a paltry 44,000 jobs were added in May.  Meanwhile, more than 9.5 million jobless workers took temporary employment last month, a category that's seen its ranks grow by 5.8 million since the recession started, the U.S. government reported.

But it's the jobless recovery of the early 1990s – which followed the recession of 1990-1991 – that may offer the best insight into what we can expect to happen next, the Federal Reserve Bank of San Francisco economists say. That admittedly pessimistic view is based on two factors:

  • First, of all the jobs that have been slashed, a miniscule number are classic "layoffs," where workers are actually expecting to be called back to their jobs when economic conditions improve. From July 1981 to November 1982, the share of unemployed workers on temporary layoff rose from 16.1% to 20.7%. From December 2007 to April 2009, however, the share of unemployed workers on temporary layoffs decreased from 12.8% to 11.9%.
  • And second, the number of people who are involuntarily working in part-time positions (when they want full-time jobs) is at a historical high. In December 2007, about 3% of the work force had taken part-time jobs for economic reasons. By April of this year, that number had nearly doubled, reaching 5.8%. What's more, more than half of those workers had reported that their weekly hours had been cut by at least five hours.

Uncle Sam to The Rescue?

It's not all gloom-and-doom on the hiring front, however.

The government's $787 billion stimulus package is slowly working its way through the federal bureaucracy to local government coffers with promises to create or save more than 3 million jobs over the next two years.

And on Monday, President Barack Obama announced 10 projects aimed at speeding up stimulus spending to create or save more than 600,000 jobs, Bloomberg News reported.

Calling it a "summer of accelerated Recovery Act activity," President Obama said the effort includes new services at health centers in all 50 states; work in 107 national parks, airport improvements, and highway construction.  They will also provide funding for schools to hire more teachers.

In the first three months of the Obama administration's stimulus plan, the government doled out about 11% of the stimulus funds, according to a progress report released by Vice President Joe Biden's office on May 13.

The report said that most programs and projects were running ahead of schedule and under budget and 70% of the funds will be allocated in the next fiscal year – enough to make a major impact, even though it's less than the 75% allocation promised by the White House.

Of course, there's a great deal of political debate over how effective the stimulus program will be.

U.S. Rep. John A. Boehner, R-Ohio, and the House Republican leader, said last week the stimulus "isn't producing jobs immediately, as the administration promised."

And Money Morning's Hutchinson says the net long-term effects of the stimulus program may be a wash for taxpayers and businesses anyway.

"U.S. businesses and consumers will be paying for all this anyway with higher taxes and interest rates," Hutchinson said. "Any job creation from that will be neutral for the economy."

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  1. fred monk | June 10, 2009

    Very nice article?? Thank you Donald

  2. Gary Wardell | June 12, 2009

    It is time to make it easier for people to retire.

    If a person retires before age 65, they can not get Medicare.

    No body wants to retire without health care.

    Every person who retires should leave a job opened for an unemployed person.

  3. Gerald Spencer | June 15, 2009

    I believe that the US government should borrow back some of the US dollars from the same foreigners that US citizens paid in US Dollars to make the things that US citizens consumed, and then throw these same US dollars at the same incompetent wall street financial geniuses that created this financial disaster. That should ghrow some green shoots and stimulate the economy! Are you telling me that this is what President Obama has been doing for the last few months?

  4. Kent Gregory | June 17, 2009

    The coming jobless recovery is a continuation of the deindustrialization of America. According to Pat Buchannon "the Bush presidency added a net of 407,000 private sector jobs over eight years, less than 51,000 a year, the worst eight-year record since 1927-35, which includes the first six years of the Great Depression." ( http://www.humanevents.com/article.php?id=30725).

    It is far worse than it appears. According to the US Census, the population increased by approximately 3,677,518 per year during the Bush years (about 29,420,154 people over eight years), a much faster growth rate than in the 90's or anytime in history. That means there was only one new private sector job created for every 72 of those new 29,000,000+ people (29,420,154 population increase / 407,000 net new private sector jobs = 72.28539).

    If GM's and other US companies plan to become competitive is to manufacture in China, the US consumer economy will not recover.

  5. Gerald Spencer | June 23, 2009

    National economic wealth is created only when a country grows something in the earth, extracts something from the earth, or makes (manufactures or constructs) something that is consumable (or useful). Transportation, distribution, warehousing, taxes, sales, delivery, packaging and other similar costs are added to the value (cost) of the product that was initially created by these basic creative efforts. The USA has almost entirely ceased to generate wealth for future generations.

    Industrious nations like China, India, Brazile, Pakistan, and other foreign nations grow wealthy and secure by creating enough products to support their needs with their farms, factories and mines, plus they earn additional currency by creating additional wealth by exporting additional products that they manufactured. The health of every other business in that economic country depends upon these productive industries.

    The US government is selling freshly printed US Bonds (that can be exchanged for title to US real estate) to China and other industrialized wealth generating nations in return for the US dollars that US importing companies paid them to make things for US citizens to consume. The US government uses these US dollars to pay US citizens for raking leaves, environmental cleanup, mortgage bailout, union retirements, TARP, wars, business failures, government payrolls, social programs, and etc. to stimulate the economy, but this just makes the existing US dollars have less value and less buying power. These are cosmetic economic stimulation changes that do not correct the structural problem that is the Trade Deficit.

  6. Gerald Spencer | June 25, 2009

    There is nothing more saddening or devastating than mass unemployment such as exists in countries such as Mexico or India. I have visited Asia many times on Business in the last century. Crime, family abandonment, divorce, selling your 12 year old (and younger) daughters to brothels, selling your 12 year old sons to rug weavers, and other bad things increase during these periods of unemployment. Our basic industries such as steel, computer chip manufacturing, petrochemical refining, appliance manufacturing, tire manufacturing, automobile parts manufacturing, aircraft manufacturing, textiles, and etc. have been decimated and/or totally eliminated from this country by US government Free Trade policies.

    Science and Technology will not save the USA economy. Asian countries are now outdistancing the USA in producing competent scientists and engineers that are even more technically qualified than the US engineers, while the USA produces MBA's and Economists. China is a source of enormous scientific talent because the "weeding out" process starts early and continues up the line to produce, at the end, a stream of highly qualified young people, small, of course, relative to the general population of China, but quite large compared to what comes out of US undergraduate programs. The problem is not "weeding out" but rather, the willingness of middle-class American kids to endure the hard work and intense focus that will enable one to avoid being weeded out. The USA idea that one is entitled to slide without effort or friction through the educational system on one's way to a high salaried job is endemic to the USA culture. The Asian countries produce very few non-technically educated students.

  7. Gerald Spencer | June 26, 2009

    Mass unemployment will foster mass civil unrest, crime, anger, riots, revolution, etc. Riots and insurrections are predictable, ala the French and Russian Revolutions, when the people find their situations economically hopeless. I would hate to live during or after a US revolution, when chaos, lawlessness, armed robbery, murder, rape, and cruelty will be the normal way of life.

    If any future US revolution to overthrow the US government is successful (maybe to protest a hopeless economic situation), where will all of the food, fuel, water, sanitation, medicine, and other necessities to support the population come from after the revolution? These necessities will not exist. Chaos and total lawlessness will prevail. Only the very meanest and the most evil will survive in this climate. We will have then totally destroyed our civilization. Will all of the city residents starve after a revolution? The US population probably cannot live off of the land anymore. Will the city dwellers foray into the country, kill the farmers, and steal the farmer's food to feed their own families?

    Everything of value in the USA will very soon be owned by China and other industrialized nations that create wealth. The purchasing value of the dollar will approach zero as the US government speeds up the printing presses to cover US government expenses. Our military, police, firemen, and etc will get paid in freshly printed US dollars that will be accepted in grocery stores and other retail venue, but at many times the number of dollars expected for each item. Public servants will probably walk off of the job, and try to find another way to feed their own families. The USA population will then become employees; possibly indentured servants; or maybe even beg to become slaves owned by the foreign countries and/or foreign individuals that will own everything of value in the USA in the very near future. US citizens might have no options if they want to feed their families? Our children and our grandchildren might also have to change to the religion (probably not Christian) of the business owner if they want a job.

  8. George Atkins | October 11, 2009

    Well sir, if you check the economic charts during the 1929 Depression
    you will see that the period was a jobless recovery. The stock market and the GDP recovered in the early 30's. But jobs did not recover which is exactly what we have here. The term "Jobless Recovery", is a cruel hoax on the American public. Hey, maybe we should rename the 1929 Depression the Jobless Recovery of 1929. Check the economic charts for yourself.

  9. Bob | December 13, 2009

    has it occurred to any one we are facing a very serious permanent unemployment Pandemic!!!

    Here is the equation and you can do the math using multiples of proportions, relativity and psychoanalysis.

    Sir

    we are in the midst of thousands of business owners North American wide or possibly worldwide now facing factual decisions and that is paying severance pay to the employees we all have on lay-off.

    This is how it looks

    small medium and large unionized companies.

    Small Companies with 52-week call back rights are now maturing to their 52-week time elapse. This means thousands of companies coast to coast are now in the process of paying out hundreds of thousands of dollars in severance pay. This event will create an unprecedented business interruption that will rock the economy financially and psychologically for 1-2 years. This will add large #'S to the unemployed privet sector job community.

    Small to Medium Size Companies with 104-week call back rights will be maturing to their 104-week time elapse 2010 to Feb 2011. This means thousands of companies coast to coast will then be in the process of paying out Hundreds of MILLIONS of dollars in severance pay. This event will create an unprecedented business interruption that will rock the economy financially and psychologically for 3-5 years. This will add large #'S to the unemployed privet sector job community. This will happen 1 year from now DEC 2010 to Feb 2011.

    Medium to Large Size Companies with 156 to 206 week call back rights will be maturing to their 156 to 206 week time elapse 2010 to Feb 2016. In this category this means thousands of companies coast to coast will then be in the process of paying out BILLIONS of dollars in severance pay. This event will create an unprecedented business interruption that will rock the economy financially and psychologically for 1-2 generations. This will add large #'S to the unemployed privet sector job community. This will happen from now Dec 2010 to Feb 2014.
    The ones that want to avoid severance pay-outs will declare bankruptcy.
    We have all ready are witnessing seismic events in the private business sector and the Gov is looking for a correction which usually takes place as history shows. In this age I think there is a GOD Event happening where the entrepreneur who is managing a unionized company realizes we have to start letting go of what was so dear to us. The frightening part of this is that there is no carrot and stick methodology the government can use to counter act this event.

    These events will have a devastating effect on North America as we now know it and I do not see any solution. It seems to me at this point and time to be an inevitable phenomena which is necessary for what ever is to come after.

    In a somewhat crude but true analogy it looks like this. A person has a Wonderful Talented and obedient dog and horse. The owner could never see the Talent and obedient spirit his animals had because he needed them to produce work on the farm. This owner was always mean spirited to the dog and horse speaking with a hard voice and using a stiff stick on the animals for some time and to his surprise one day the dog and horse vanished from his property. You see the man finally found his dog and horse again but they could not do anything for him like last time.
    He tried to help them he new were he went wrong taking them for granted. Now he realizes he has to find a new dog and horse and start over. He does this only to find out most of all the dogs and horses are the same. So he stops farming and makes a small garden and closes his curtains.

    My wife is a nurse I feel so sad for her and here colleges. Our hospitals are very busy but as we enter the time that we have already embrace I think our hospitals will be like the TV show M.A.S.H .

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