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Hiring might not rebound in an economic recovery

After upheaval in the auto and financial sectors, many workers may find the jobs they lost are gone forever.

July 02, 2009|Don Lee

WASHINGTON — Even as the nation's economy begins clawing its way out of the worst recession in 60 years, there are growing signs that this recovery could come with an unsettling twist: The wheels of commerce may begin to turn again without any substantial boost in jobs.

Not only is the national unemployment rate, now 9.4%, likely to climb into double digits later this year, but it is also expected to remain there well into 2010, economists say. That would prolong the misery of the unemployed, squeeze retailers and other businesses, and add millions of dollars in government costs and lost productivity. It could even threaten the recovery itself.

Though it's common for the jobless rate to keep climbing for a time after economic output turns positive, the aftermath of the last two downturns, in 1990-91 and 2001, introduced the idea of a "jobless recovery." Even though the economy improved, many unemployed workers discovered that jobs as good as the ones they'd lost were almost impossible to find.

This time, many economists say, there are new factors that could make the problem worse. Many more layoffs in this recession have been permanent, not temporary.

And mass layoffs are continuing at a record pace; in May they cost nearly 313,000 workers their jobs. Since the recession began in December 2007, the U.S. economy has shed 6 million payroll jobs. That tally is expected to grow today when the Labor Department releases the June employment figures.

Also, instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes: General Motors Corp. and Chrysler, for example, closed hundreds of dealerships. Citigroup Inc. and Bank of America Corp. cut tens of thousands of positions.

In addition, workers who survived job cuts are, on average, working fewer hours per week than ever before, according to Labor Department statistics. That means employers, even when they feel confident enough about the recovery to expand, will begin by giving more hours to existing employees instead of hiring new ones.

More troubling still is the outlook for consumer spending, the main driver of the U.S. economy. If people don't spend, many businesses simply won't have the means or the need to hire employees.

Indeed, the depth of this recession, plus widespread expectations that unemployment will keep rising into 2010 and remain high thereafter, may exert a powerful drag on the recovery.

Shortly after the 1990-91 recession, consumers went out and bought houses, cars and other expensive goods on credit, noted Richard Curtin, director of the University of Michigan consumer sentiment survey.

That helped boost job growth in construction, manufacturing and other industries.

But this time around, because of the severe credit crunch, people won't be able to get financing as easily, and those who can borrow will be reluctant to do so, Curtin's surveys indicate.

Instead of leading the way to a more vigorous economy, consumers are saying they want to save and keep their personal debts low. Americans socked away almost 7% of their after-tax income in May, the highest rate in 15 years.

"What this means is that we're going to have a slow-growing consumer sector," Curtin said. So even though the federal government's stimulus spending is likely to pick up some of the consumption slack next year, he said, "spending is expected to slow down in 2011 and disappear in 2012."

That's what scares Howard Roth, chief economist at California's Department of Finance. The Golden State has been hit particularly hard by the housing meltdown, and its jobless rate has already climbed to 11.5%.

"If you look at the situation of consumers -- home equity, it's gone away. The stock market has wiped away retirement savings," Roth said. "The consumers are not going to be able to spend as much as before."

Analysts say there are factors that could mitigate the jobless recovery.

Healthcare and government employers are expected to continue hiring. Green industries are emerging and will need more people.

What's more, companies today aren't seeing the kind of sharp gains in productivity that previously allowed them to expand output without adding workers, so this time, if a company wants to produce more, it may have to hire.

And with wages depressed because more people are unemployed, adding to the workforce will be cheaper. Many employers already have cut to the bone.

At Quality Float Works Inc., a Chicago-area manufacturer of industrial floats and valves, employment has shrunk to 15 from 20 a year ago. Some of the remaining employees are older workers who in ordinary times might have retired, said Sandra Westlund-Deenihan, the company's president.

"Their 401(k)s became 201(k)s. They stayed on with us," she said. When they are ready to leave, she added, it will create a wave of openings, but just when that will happen is anybody's guess.

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