The number of unemployed Americans jumped more than expected in September, raising the unemployment rate to 9.8%, the highest level since 1983. The latest data suggest the odds are increasing that the economy may be suffering through its second “jobless recovery” in eight years.
U.S employers cut 263,000 jobs from payrolls in September the Labor Department said Friday, topping forecasts by most experts. A survey of 84 economists by Bloomberg News had projected a drop of 175,000 jobs for the month. Although the September unemployment rate matched the median projection, the number of actual job losses exceeded the highest projections.
The increase added fuel to fears that the worst financial crisis since the Great Depression may further chill consumer spending and economic growth in the months ahead as employers continue to delay hiring until signs of an economic recovery become more visible.
“You will see the economy pulling back,” Richard Yamarone, head of economic research at Argus Research Corp. in New York and most accurate forecaster surveyed, told Bloomberg in a television interview. He added payrolls may not return to their previous peak for years to come.
The total number of jobs lost since the recession officially began in December 2007 now stands at about 7.6 million and the total number of unemployed workers rose to 15.1 million. That number is expected to climb substantially throughout the remainder of the year and well into 2010.
There were about twice as many unemployed workers as job openings during the last recession, in 2001, according to the Labor Department data. By the beginning of this year, the ratio reached four-to-one, and has been growing ever since.
Now, with only 2.4 million full-time permanent job openings and 15.1 million unemployed, job seekers outnumber openings six to one, the worst ratio since the government began tracking open positions in 2000, according to an analysis of Labor Department numbers by The New York Times.
But while the decline in payrolls has moderated from the 700,000 job losses in January, companies are still not hiring on a wide scale.
“There’s too much uncertainty out there,” Thomas A. Kochan, a labor economist at M.I.T.’s Sloan School of Management, told The Times. “There’s not going to be an upsurge in job openings for quite a while, not until employers feel confident the economy is really growing.”
A Chicken & Egg Economy
The U.S. economy is powered by consumers, who account for 70% of economic activity. Until 2007, consumers fueled the economy by enthusiastically borrowing against real estate and tapping escalating stock portfolios. Now that the easy money has disappeared, consumers are pulling back on spending and increasing their savings.
Unemployment is the most important factor in limiting consumer spending. Without consumers priming the pump, economic activity dries up, and that makes businesses that might otherwise hire and expand more inclined to hunker down.
It’s the classic chicken and egg riddle: The economy needs the consumer to increase spending to spark overall growth, but it won't happen as long as unemployment remains high.
“Household balance sheets are shot,” Alan Ruskin, an economist with the Royal Bank of Scotland Group PLC (NYSE ADR: RBS) in Stamford, Conn. told The Times. As usual, increased spending “has to come from income, and income has to come from employment, and at this juncture it looks like employment will only improve very slowly.”
Losses Hit Construction and Manufacturing Hard
Job losses are hitting all sectors except healthcare, which added 19,000 jobs in August, but the gains were swamped by losses elsewhere. The drop in construction jobs was especially large: 64,000. The sector has shed more than 1 million jobs in the past two years.
Despite a report last week from the Institute for Supply Management (ISM) showing that factory capacity is still expanding, the manufacturing sector lost 51,000 jobs in September.
Another important indicator, initial claims for unemployment benefits, rose 17,000 to 551,000, in the week ended Sept. 26, according to data released last week by the Labor Department, after falling for three straight weeks. Economists had been expecting claims to rise by only 1,000 to 531,000.
Meanwhile, the world’s largest economy is forecast to expand 1.5% next year, after contracting 2.7% in 2009, the International Monetary Fund (IMF) said last week.
But that may not be enough to get unemployment down to acceptable levels.
“Unless the economy grows significantly faster than its longer-term growth rate," which economists peg at about 3% annually, "it will be relatively slow in creating jobs over and above people coming into the labor force…therefore the unemployment rate would tend to come down quite slowly," Federal Reserve Chairman Ben Bernanke said last month.
That's the problem facing U.S. President Barack Obama, who promised his stimulus program would create 3 million new jobs, and Bernanke, who’s responsible for returning the country to full employment.
Economy Needs 8 Million Jobs to Get Even
To do that, they would have to spur employers to replace the 7 million jobs already lost, and find jobs for 1 million people who enter the work force annually. To get back to full employment, or below 5% unemployment, the economy will have to create 12 million to 14 million jobs.
"The problem here is that once the economy makes the turn, and once we're not only out of recession but out of this period that feels like recession … even then the economy is not going to be growing fast enough consistently to bring down the unemployment rate," Ken Goldstein, an economist with the Conference Board told McClatchy Newspapers.
In September, Jared Bernstein, the top economic adviser to U.S. Vice President Joe Biden, credited the president’s $787 billion stimulus program for keeping things from getting even worse. He pointed out that more than two-thirds of the package has yet to be distributed.
“Our interventions have contributed to significant cuts in the rate of job loss,” Bernstein said. “We’re headed in the right direction, but we’re far from out of the woods. There are simply too many Americans seeking work.”
Even after companies decide to begin hiring again, they won’t be forced to bring people in off the street. Most businesses have cut back on working hours for the ones fortunate enough to still be employed. Many of these companies will be able to increase output simply by adding hours for existing employees.
“They have tons of room to increase work without hiring a single person,” Heidi Shierholz, an economist at the Economic Policy Institute told The Times. “For people who are out of work, we do not see signs of light at the end of the tunnel.”
No Recovery Until 2015
, the IMF warned last week.
"It will take a recovery in automobiles and housing for the manufacturing sector to once again prosper," Norbert Ore, chairman of the ISM Manufacturing Business Survey Committee told The Kiplinger Letter.
And it’s unlikely those sectors will rebound until at least 2010, despite the government’s efforts to kick start the economy with giant stimulus programs.
Unless the economy grows more than predicted, the unemployment rate is likely to remain stubbornly high, at around 8% by the end of 2011, said Goldstein.
"It might be 2012 or 2013 before we're back below 6%. We're certainly not going to go back to 4. We may not see 5 again. But to be in the 5.5 range, we could be there by mid-decade," he said.
If he’s right it will be 2015 before the job market returns to a semblance of normal and the economy gets back on firm footing.
And, based on their concern for Wall Street, many companies simply don’t have the incentive to begin hiring.
“I don’t think businesses will hire back anytime soon,” Allen Sinai, chief global economist attold The Times. “Companies are rewarded by the stock markets for not hiring and keeping their costs down. We will see another jobless recovery.”
News & Related Story Links:
- Money Morning:
Jobless Recovery Category
U.S. Economy: Job Losses Exceed Forecast, Imperiling Recovery
- New York Times:
U.S. job seekers exceed openings by record ratio
- New York Times:
In Unemployment Report, Signs of a Jobless Recovery
U.S. Economy: Factories' Growth Slows, Claims Rise
- McClatchy Newspapers:
Will Obama, Fed tolerate another jobless recovery?
- Financial Times:
This Jobless Recovery Will Be Agonizing