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U.S. Unemployment to Remain High Through 2011 and Beyond

Economics / US Economy Nov 22, 2010 - 06:17 AM GMT

By: Money_Morning

Economics

Best Financial Markets Analysis ArticleDon Miller writes: Stocks are up nearly 70% from their bear market lows. Corporate profits are rising. And the economy is expanding. Yet the unemployment rate continues to hover around 10%.

Neither President Barack Obama's $787 billion stimulus program, nor the U.S. Federal Reserve's quantitative easing has generated enough good news to convince companies to hire meaningful numbers of new workers.


Of the 8.7 million people who lost their jobs during the recession, more than 7.3 million are still without work. There are still nearly five job seekers for every job opening. In fact, adding in workers who are working part time but looking for full-time work and those who have given up looking all together brings the "real" unemployment rate to a staggering 17% compared to 16.5% last year, the latest government report shows.

And even though private sector payrolls increased by 151,000 in October - bringing the number of jobs created since the economy bottomed in December 2009 to 1.1 million -the share of the population working or looking for work declined to 64.5%, its lowest level since 1984.

The percentage of consumers who expect an increase in income over the next six months has fallen to just 10%, a depth not seen since April 2009, according to the Conference Board.

All this uncertainty and fear weigh on sentiment. Surveys of consumer confidence show that job prospects and wage growth are on top of the list of concerns for Americans.

Meanwhile, the economy continues to chug along at an anemic annual growth rate of roughly 2%, barely enough to cover the number of new workers entering the job market, let alone the already idled.

Unfortunately, slow economic growth will add up to more of the same in 2011. No meaningful improvement will take place in the unemployment picture next year because the economy simply isn't strong enough to put a dent in the jobless ranks.

And even in the most optimistic scenarios, it's going to take years for a return to pre-recession levels.

Long-Term Unemployment Now the New Norm
The Great Recession has spawned some truly unique - and ugly - economic offspring. But one trend has emerged that sets it apart from most economic downturns: the swelling ranks of the long-term unemployed.

The number of people who've been collecting unemployment benefits for at least six months increased by more than 100% in 40 states over the last two years, according to an analysis of unemployment insurance data compiled by National Employment Law Project (NELP).

Overall, it's not a pretty picture...

The number of long-term unemployed (those jobless for 27 weeks and over) stood at 6.2 million in October. Those folks now account for 41.8% of the 14.8 million unemployed workers in the country.

"Long term unemployment is more than ever the norm of a layoff, and it's across the country and across the economy that this is happening," Andrew Stettner of NELP told the Huffington Post.

The reality of long-term unemployment is even worse than the numbers suggest.

"This is certainly a crisis of huge proportion and it is reflected in an extraordinary number of people unemployed for a very long time," wrote Lawrence Mishel, president of the Economic Policy Institute, in an email to the HuffPost. "It's even worse than that because we're seeing a large withdrawal from the job market and one can assume that this is among those who have been unemployed a long time -- giving up."

This trend is important because long-term unemployment feeds on itself.

There are a series of consequences that follow long-term unemployed workers far into the future. Job skills deteriorate, job networks disappear, and workers lose hope. The longer a worker is unemployed the less likely he or she is to find a new job and the more likely it is they will find only a lower-paying job.

"People lose job skills, they become unemployable," said Dean Baker, co-director of the Center for Economic and Policy Research. "It becomes a real long-term problem. People in their late 40s and 50s who end up out of work for long periods of time may drop out of the work force and never get another regular job."

There are also other - less obvious - consequences of long-term unemployment. According to recent research, job displacement can lead to significant reductions in life expectancy. Other research shows that the children of these workers earn less when they become adults and enter the labor force.

Full Job Market Recovery Years Away
The specter of long-term unemployment will sustain the unemployment rate as the skills of idled workers deteriorate and segments of the labor force are compelled to retrain or move out of the areas of the country that were propped up by the housing bubble. The likely result is that the unemployment rate will fall at only a gradual pace.

"Something similar happened in the early 1980s as the country transitioned from a focus on exports and manufacturing and embraced the technology revolution," Anthony Mirhaydari wrote in a column for MSN Money.

The unemployment rate climbed from a low of 3.4% in 1969 to a high of 10.8% in 1982. It took an additional 18 years before unemployment moved back under 4%.

To determine how long the recovery will take this time, the Brookings Institution recently examined the "job gap," or the number of months it would take to get back to pre-recession employment levels while absorbing the 125,000 people who enter the labor force each month.

The results show that even under the most optimistic scenarios, it will take years to eliminate the job gap.

If the economy adds about 208,000 jobs per month, the average monthly rate for the best year of job creation in the 2000s, it will take 142 months, or about 12 years to close the job gap.

At a more optimistic rate of 321,000 jobs per month, the average monthly rate for the best year of the 1990s, the economy will reach pre-recession employment levels in 60 months, or about 5 years.

Here's the takeaway: Based on the history, pre-recession unemployment rates won't be seen again until at least 2016, and in all probability much later, as idled workers find it harder and harder to land jobs.

Will Congress Extend Unemployment Insurance Again?
For workers experiencing long spells of unemployment, unemployment insurance is one tool to help ease the pain until the economy recovers.

Congress acted to extend unemployment benefits back in 2008 with the Emergency Unemployment Compensation Program (EUC) just after the recession began and has extended it four times.

The U.S. Department of Labor recently published the findings of a multi-year study that showed the EUC has played an important part in stabilizing the economy during the recession. In fact, the study claims that economic activity increased by two dollars for every dollar spent on benefits.

The study also showed that, at the height of the recession, the EUC averted 1.8 million job losses, kept the unemployment rate approximately 1.2 percentage points lower and boosted GDP $315 billion higher from the start of the recession through the second quarter of 2010.

But unless the lame duck Congress moves to extend them once again, the current round of EUC legislation is scheduled to begin phasing out at the end of November. If no extension is approved, two million workers, or about one-third of the long-term unemployed, will lose their benefits in December (just in time for the holidays!), according to NELP.

"The current expiration date will cause a cascade of unemployed workers to fall off the unemployment rolls, prematurely cutting benefits for some and making any form of an extension completely unavailable for others," NELP noted in a recent report.

Some Jobs May Never Come Back
To be clear: not all the news on the job front is bad.

The Conference Board last week reported its index of U.S. leading indicators rose for a fourth consecutive month, manufacturing surged in the Philadelphia area, indicating the economy is picking up steam.

Temp-hiring companies such as Manpower Inc. (NYSE: MAN) and Robert Half International Inc. (NYSE: RHI) are seeing a big increase in demand as businesses need to ramp up production but are leery of adding new employees.

Even initial jobless claims fell earlier this month.

"The soft patch is behind us," Jonathan Basile, an economist at Credit Suisse (NYSE ADR: CS) in New York told Bloomberg News. "We have a little more momentum. Employers are getting a bit more optimistic about the outlook and don't need to cut costs like before."

But we are experiencing an unusual recovery on many fronts - including a historic rise in the long-term unemployed.

And the simple truth is that some jobs that have been lost may never come back.

The housing market bubble has burst and we simply don't need all the construction workers, real-estate agents and mortgage brokers anymore. And we don't know where new jobs will come from.

The evidence suggests that trade and transportation will be important areas in the years to come as America pushes its exports. Job categories related to mining, metals, plastics and rubber products have seen healthy increases over the past few months, according to Labor Department statistics. Education and health services have also seen gains, as has clean energy.

Investors can ride along with the iShares Dow Jones Transportation Average Exchange Traded Fund (ETF) (NYSE: IYT), or long time Money Map Press favorite Newmont Mining Corp. (NYSE: NEM). Freeport McMoRan Copper & Gold Inc. (NYSE: FCX), focus of a recent Money Morning "Buy Sell or Hold" column also could benefit. And in the clean energy sector Suncor Energy Inc. (NYSE: SU) might deserve a look.

But all of these should be viewed from a long-term perspective, just as most of those caught up in the unemployment morass face a long-term return to normalcy.

Source : http://moneymorning.com/2010/11/22/...

Money Morning/The Money Map Report

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