- The Washington Times - Saturday, June 6, 2009

It’s not over yet.

That was the message from both a key report on job losses Friday and the head of the Boston committee that officially declares when a recession has ended. Both showed that the economy has a long way to go before growth returns.

Employers continued to slash jobs, and the unemployment rate kept soaring. The jump in unemployment from 8.9 percent to 9.4 percent in May left joblessness at the highest levels in more than a quarter-century. But the monthly rate of job losses, at 345,000, was only half the peak rate of 700,000 hit earlier this year.

The slowing of the economy’s decline from extreme levels during the winter has led some economists and traders in financial markets to declare that the recession is nearly over. The belief that the economy is on the verge of turning around has spawned strong rallies in markets from stocks to oil and risky forms of credit.

But the head of the National Bureau of Economic Research committee that dates key turns in business cycles, Robert Hall, firmly put down speculation that the economy is definitively repaired.

It’s “way too early” to say the recession is over, he told Bloomberg News. Economic output “had a trough earlier this year, but it is way too early to say that it is a true trough rather than a pause in a longer decline.”

Mr. Hall added that it is likely to be “a long time” before the committee will be able to determine whether and when the recession ended, because of the conflicting signals being sent by the economy.

Friday’s jobs report from the Labor Department was a case in point.

The divergence between the surging unemployment rate and slowing job losses left economists at odds over the outlook for the economy.

“The massive hemorrhaging over the past few months has abated and the worst slump is behind us,” said Sung Won Sohn, business professor at California State University, one of many economists who believe economic growth will return in the second half of the year.

He explained that the continued rise in the unemployment rate is an after-effect from the deep recession.

“Once the economy stabilizes around mid-year, a jobless recovery could be in store,” he said. “The unemployment rate, a lagging indicator, will keep marching upward throughout the year. The unemployment rate will hit 10.5 percent by year-end before showing signs of moderation.”

A key ingredient of the recovery, Mr. Sohn said, is the more upbeat mood of consumers.

“Consumers have become more optimistic about the future. They believe it is a good time to buy houses and other big-ticket items,” he said, although he acknowledged that consumers remain “cautious about spending in general” and “focused on necessities like food, shunning luxuries.”

Other economists believe the outlook for the economy is darker and that markets have gone too far in anticipating a recovery.

“The labor market is in bad shape,” although the pace of deterioration has slowed, said Harm Bandholz, economist with Unicredit Markets & Investment Banking. He was suspicious of the marked fall-off in the pace of layoffs seen in May, suggesting it was due to distortions in the Labor Department’s seasonal adjustments.

May’s job losses bring the total of jobs axed during the recession to 6 million. The layoffs were widespread among most industries, and led by huge job losses in manufacturing, as seen in past months.

Layoffs at Chrysler and General Motors factories as the companies fell into bankruptcy most likely accounted for much of the 156,000 industrial jobs lost. Even the government sector, which had posted job growth in the past, shed 7,000 jobs in May.

But the layoffs in construction, retailing and the broad services area - previously hard-hit sectors - were at about half the pace seen previously. And employment in the two sectors that never shed jobs during this recession - education and health care - actually picked up 44,000 in May from 13,000 in April.

For the millions of people still working, wage growth was extremely weak during the month, with hourly earnings essentially unchanged at $18.54, the department said. The workweek also declined one-tenth of an hour to 33 hours.

The combination means take-home pay declined during May - putting a dent in the pocketbooks of hard-pressed workers and making it harder for consumers to spend.

The deep job and income losses are key reasons why Mr. Bandholz is not optimistic that consumers will be able to become the engine of growth that pulls the economy out of recession, despite their brighter mood recently.

“The weak labor market will suppress consumption growth well into 2010,” said Mr. Bandholz.

John Silvia, chief economist at Wachovia Securities, said the high unemployment rate signals “more household credit stress” ahead for jobless workers and will weigh on consumer spending.

But the slackening of job losses in the past two months is “consistent with our expectations for growth in the second half of the year.”

Vice President Joseph R. Biden Jr. hailed evidence that the massive $787 billion economic stimulus bill passed by Congress in February is starting to have an effect in slowing the rate of construction job losses.

But while he called that an “encouraging sign,” he added that ” ‘less bad’ is not how we’re going to measure success. … Let me be very clear: A lower job-rate loss is not our goal.”

Mr. Biden said he and President Obama will announce a “ramp-up” in implementation of the stimulus bill on Monday to try to hasten job gains.

Terry O’Sullivan, general president of the Laborers’ International Union of North America, agreed that the stimulus has helped to limit construction job losses but said it won’t be enough to bring growth back to the construction industry.

“Even after the economic recovery investments to build America take full effect - expected to create about 700,000 construction jobs - there will still be more than 1 million construction workers looking for work,” he said.

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