Chicago Tribune Gail MarksJarvis column: Bleak outlook for jobs

Nov 04, 2009 (Chicago Tribune - McClatchy-Tribune Information Services via COMTEX) -- JNJ | Quote | Chart | News | PowerRating -- Although investors have been pocketing several tidbits of good news about the economy since March, jobs numbers have not been among them.

And Friday's unemployment figures are not expected to provide significant encouragement either. Although job losses have not been as extreme as they were late last year, when more than 500,000 jobs were being eliminated each month, massive layoffs are still occurring. Johnson and Johnson announced thousands of job cuts Tuesday, and economists are expecting the unemployment rate in October to increase to 9.9 percent. That's far higher than the 6.3 percent high after the 2001 recession, and Treasury Secretary Timothy Geithner said last week that he is expecting unemployment to continue to rise in the months ahead.

Even if unemployment peaks next year, healing is expected to take years.

In part, that's because the economy is projected to grow at a lethargic pace in coming months as businesses have trouble borrowing money and individuals curb spending without the home refinancing cash that helped them after the last recession. It's also because of changes in the economy, as manufacturers close and technology helps businesses do more with less.

"In prior recessions before the 1990s, once the economy started growing, employment bounced back," said Sophia Koropeckyj, managing director of Moody's Economy.com. "People were temporarily laid off, and when sales increased, companies brought employees back to work."

But now that's less likely, prompting the term "jobless recovery."

"Now, manufacturing jobs are lost ... facilities have been closed completely, and people who have lost those jobs are going to have a harder time finding jobs they are qualified for," Koropeckyj said.

Consumer confidence data suggest few people believe jobs are "plentiful." Analysts expect the economy to be sluggish for months because people without jobs or those afraid of losing them are unlikely to spend freely. Consumers are the backbone of the economy, and corporate profits and, consequently, stock prices suffer when people don't spend.

Meanwhile, sharp layoffs taught companies they can adapt to the weaker economy.

"They found ways that worked pretty well, so jobs won't revert back," Koropeckyj said.

Many firms have survived the recession by furloughing workers or cutting hours, and they will bring them back before hiring from the millions of unemployed people.

Economy.com is expecting the unemployment rate to drop slowly and stabilize at roughly 5.5 percent in 2014, a rate that will remain worse than the low of 4.4 percent between the recessions.

Although some believe that a jolt of optimism could help push employment along, economists say that the math of employment shows how long the process of re-employing Americans will take.

When the economy is growing at a typical 2.5 percent to 3 percent rate, the economy needs to add about 125,000 jobs a month for the people who enter the work force because of population growth. Now, about 15 million people are out of work. So it will take years to absorb those people.

Economists use a rough calculation about how that absorption proceeds. For every 2 percentage points the economy grows above the usual trend of about 2.5 percent a year, unemployment dips by about 1 percentage point, said Dan Greenhaus, chief economist at Miller Tabak.

On that basis, he said, people are unrealistic if they think simple optimism will put Americans back to work quickly.

He uses the 1990s as an example. In 1993, when Bill Clinton took office, the unemployment rate was 7.4 percent after the economy had gone through a downturn sparked by overaggressive commercial real estate development and lax lending practices.

During the next eight years, Greenhaus said, the gross domestic product, fueled by a technological revolution, grew on average at 3.7 percent a year, or about one percentage point above typical growth. If the economy were to grow at 3.7 percent over the next eight years, he said, the unemployment rate would still be more than 6 percent.

Greenhaus said you cannot expect such extraordinary growth now because there is no obvious revolution on par with the development of the Internet in the 1990s.

gmarksjarvis@tribune.com

To see more of the Chicago Tribune, or to subscribe to the newspaper, go to
http://www.chicagotribune.com. Copyright (c) 2009, Chicago Tribune Distributed
by McClatchy-Tribune Information Services. For reprints, email
tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax
to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave.,
Suite 303, Glenview, IL 60025, USA.

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index