Moderating Job Losses Is Good News

Rising unemployment and the disappearance of more jobs in August signal a weak economic recovery in the months ahead.

By Jerome Idaszak, Associate Editor, The Kiplinger Letter

September 4, 2009

Don’t look for the job market to turn around for months yet -- spring 2010, at best. For now, improvement is measured in how much more slowly the economy loses jobs, not how fast it gains them. By that standard, net job losses of 216,000 in August -- 60,000 fewer than in July and only about a third as many as the monthly average for the first half of 2009 -- is considerable progress. Still, it means a very sluggish economic recovery.

Despite an apparent pickup in economic activity -- home sales are rising, new manufacturing orders are at their best in five years, and factory production is the highest in four years -- companies aren’t hiring. Indeed they’re continuing to reduce hours, furlough workers and cut pay for those who are still employed. Odds are the unemployment rate, which hit 9.7% in August, will continue to climb in the months ahead, peaking at above 10% early next year before leveling out as the recovery takes firmer root. Counting part-timers who want to be working full-time and discouraged workers who are no longer bothering to look for employment, the jobless rate is 16.8%. Meanwhile, the average workweek has declined to just 33.1 hours.

It’s no wonder consumers remain gloomy. Household incomes are taking a big hit, and that’s curbing consumer spending. It’s fallen in four of the past six quarters. Although we expect spending to tick higher in the third quarter of this year -- largely reflecting auto sales inflated by the cash for clunkers program -- growth will likely weaken in the fourth quarter. Consumer spending won’t pick up much until well into next year and even then, won’t be robust.

With subpar job and wage growth, it’ll be a subpar recovery. For this year, we expect job losses to total about 4.5 million, with 2010 showing a small net gain. Returning to employment levels of a couple of years ago will be slow and difficult. Firms have shed about 6.9 million jobs since the recession began in December 2007. And the labor force adds about 1 million job seekers a year. To reach prerecession total employment, the economy has to create 12 million jobs over the next five years, says Martin Regalia, chief economist with the U.S. Chamber of Commerce. To do that, the economy must grow at least 2.5% annually.

The three hardest hit categories for job losses in August continue to be construction, down 65,000; manufacturing, with a loss of 63,000 jobs; and financial services, down 28,000. Jobs in health care continue to grow, adding 28,000 workers in August.

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