U.S. & Global Economies

Double-Digit Unemployment
Through 2010

Everyone’s talking jobs these days — the government included. But only time can bring them back.

By Jerome Idaszak, Associate Editor, The Kiplinger Letter

November 20, 2009

Jobs are on everyone’s mind these days as unemployment climbs despite economic growth. Elected officials of all stripes are feeling the heat from their constituents.

There’s not a lot Washington can do, and a Dec. 3 White House summit meeting with CEOs, union leaders, small business owners, economists and others is likely to yield few fresh ideas and fewer real results. On the table: Extending unemployment benefits again, giving businesses a tax credit for hiring new workers and additional federal spending on infrastructure, maybe in the form of new federal highway legislation. But both Congress and the White House will be inclined to avoid costly measures that would swell the budget deficit -- on course to top $1.5 trillion this fiscal year.

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Only time will cure the problem -- time for a gradual revival of credit markets and for a climate shift. In today’s risk-averse environment, few firms are willing to expand, betting on a better tomorrow. And for those that are willing, financing is tight -- either by government fiat (tougher lending standards) or because lenders have become supercautious. That’s especially true for small businesses, where most job creation takes place.

The fact is, unemployment will get worse before it gets better, rising to about 10.5% next spring, then hovering around 10% through the end of the year. Just to hold that rate steady, total employment needs to grow by about 125,000 jobs a month, absorbing young folks seeking their first job plus new immigrants. That’s a long way from the 190,000 jobs lost in October.

Indeed, it will be next spring before the long slide of job losses comes to an end, with businesses hiring more people than they fire. Total employment for 2010 will probably increase by only about 1 million.

One reason: There’s still plenty of room for businesses to increase production and handle new orders without putting new workers on the payroll. They can switch part-timers to full-time and lengthen the workweek, now at a 45-year low. According to economist Daniel Meckstroth of the Manufacturers Alliance/MAPI, manufacturers have enough slack to boost production 5% in 2010 without having to hire.

The best prospects for job growth are in health care, a field that has kept increasing despite the recession, adding 234,000 jobs so far this year. Passage of a major health care bill by Congress will only add to demand for nurses, pharmacists, home health care aides and technical assistants.

Another early winner: The energy industry, with increasing need for engineers in nuclear, wind and solar power. Expect more demand as well for human resources professionals to advise companies on new hiring and retaining existing workers. And lawyers, accountants and consultants should enjoy a stronger market for their services as the economy recovers. Even hard-hit manufacturing will see some gains, mostly in food processing, pharmaceuticals and medical equipment.

Trailing the pack will be construction, retailing and finance, although there are new jobs stemming from the effort to modify thousands of delinquent mortgages.

The bottom line: It will take years to return to prerecession employment totals, rehiring the nearly 8 million folks who have been laid off, plus the 1.5 million new workers who enter the labor market each year. And that doesn’t take into account the 9 million part-time workers who want to hold down a full-time job.

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