- The Washington Times - Friday, January 1, 2010

Despite Thursday’s Labor Department report that first-time claims for jobless benefits tumbled by 22,000 last week, the good news did little to dispel fears that the U.S. economy is enmeshed in its third consecutive “jobless” recovery.

“Although layoffs have declined significantly from their peak, hiring has yet to pick up substantially,” said Andrew Gledhill of Moody’s Economy.com.

Most economists say that America’s longest, deepest post-World War II recession ended in July or August.

U.S. gross domestic product, which represents the value of all goods and services produced in the United States, increased at an annual rate of 2.2 percent during the July-to-September period, prompting most economists to tentatively declare that the downturn ended during the first two months of the third quarter.

However, the U.S. economy continued to suffer net job losses through November, when payrolls declined by 11,000 jobs. During December, according to Thursday’s Labor Department report, a weekly average of 460,250 workers filed initial claims for unemployment benefits.

To be sure, the monthly pace of net job losses has clearly moderated.

During the first quarter of 2009, when U.S. GDP plunged at an annual rate of 6.4 percent, the economy lost nearly 700,000 jobs per month, according to payroll information supplied by firms. During the third quarter, as the economy resumed growth, U.S. employment fell by an average of 199,000 jobs per month. (The unemployment report for December will be issued Jan. 8.)

During October and November, job losses totaled 111,000 and 11,000, respectively. But the unemployment rate, which is determined by a survey of U.S. households, jumped from 9.8 percent in September to 10.2 percent in October and remained in double digits (10 percent) last month.

“After starting the year with the heaviest downsizing in nearly a decade, the number of job cuts declined dramatically in the second half of 2009, providing hope for an eventual job-market turnaround,” according to an outlook report recently released by Challenger, Gray & Christmas, a global outplacement firm. “The turnaround should become more evident in 2010, as job creation finally begins to outpace job losses.”

The report warned, however, that the unemployment rate could remain “stubbornly high, as millions of Americans who abandoned the job search out of frustration - and, therefore, [were] not counted among the unemployed - re-enter the labor pool.”

Since the recession began in December 2007, the private sector has lost more than 8.1 million jobs, including 1.7 million in construction and 2.2 million in manufacturing. Meanwhile, the government sector has added 163,000 workers to its taxpayer-funded payrolls since December 2007. The unemployment rate has more than doubled since the recession erupted, jumping from 4.9 percent in December 2007 to 10 percent in November 2009.

Private forecasters expect the economy will continue to jettison jobs well into next year.

“We see private employment turning higher in the second quarter of 2010,” IHS Global Insight economists Nariman Behravesh and Nigel Gault said in their December forecast. “Overall, payroll job gains will probably return by March 2010, given the extra kick from census hiring.” The forecasting firm expects average monthly payroll employment to decline by 0.9 percent in 2010 compared with 2009.

The 2010 unemployment rate will jump to 10.2 percent from 9.3 percent for 2009, according to the IHS Global Insight forecast. It is then expected to decline slowly, reaching 7.3 percent in 2014, the seventh year after the recession began. At 7.3 percent, the 2014 unemployment rate would still be nearly 50 percent higher than the 4.9 percent jobless rate at the end of 2007.

Economists at Wells Fargo are even gloomier. “We expect sustained [increases in] monthly payroll numbers will start to appear in the late spring of 2010,” they said in their latest forecast. Wells Fargo expects the 2010 unemployment rate to average 10.5 percent, not much different from the 10.3 percent rate it projects for 2011.

The Federal Reserve is not optimistic either. In a recent speech, Fed Chairman Ben S. Bernanke noted that “net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force.” Thus, he said, “the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect.”

As the economy begins to generate net job growth, discouraged workers will re-enter the labor force, analysts say.

“Even if we begin to see net payroll gains in the 200,000 to 300,000 range by the end of 2010, it probably will not be enough to offset the influx of job seekers re-entering the labor pool after months of self-imposed exile,” said John Challenger of Challenger, Gray & Christmas.

Until the early 1990s, a “jobless recovery” would have been considered a contradiction of terms.

Job growth historically has occurred shortly after the end of a recession. Indeed, contrary to relentless declarations by cable-TV commentators, payroll employment is officially classified as a coincident indicator - not the “lagging indicator” it is repeatedly claimed to be. Coincident economic indicators measure the economy’s performance at that moment in time, give or take two or three months.

For example, payroll employment reached its bottom in the very first month after the end of the 1973-75 and the 1981-82 recessions. Those were the deepest postwar downturns before the latest recession.

The U.S. economy did not suffer its first jobless recovery until after the 1990-91 recession. Then, it took 14 months for total employment to surpass its level at the bottom of the recession. Although the 2001 recession ended in November, employment reached its bottom in August 2003 and did not return to its November 2001 level until April 2004.

Compared with previous recoveries, the unemployment rate declined much more slowly after the 1990-91 and 2001 recessions.

The postwar jobless rate peaked at 10.8 percent in November 1982, which was the trough of the 1981-82 recession. In January 1983, it dipped to 10.4 percent and plunged to 8.3 percent by the end of the year. After the 1973-75 recession hit bottom in March 1975, the unemployment rate peaked at 9 percent in May. A year later, it was down to 7.4 percent.

However, the unemployment rate continued rising for 15 months after the trough of the 1990-91 recession, reaching 7.8 percent in June 1992. Similarly, 19 months after the 2001 recession ended, the jobless rate hit its cyclical peak of 6.3 percent in June 2003.

The current expansion appears to imitate the jobless recoveries after the 1990-91 and 2001 recessions.

Economists attribute the lackluster employment response in the current recovery to the expansion’s subdued pace, which is largely the result of ongoing tight credit conditions, sluggish consumer spending and massive amounts of unused business capacity. If forecasters are right, the jobless rate will not dip any time soon.

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