Employment Conditions Lag Behind Economic Recovery

November 3, 2009

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Despite the U.S. economy exiting the recession, employment conditions remain difficult across a wide range of industries, raising doubts that the job market can achieve the same level of recovery occurring in other economic sectors.

Businesses are returning to profitability, or at least posting solid gains, and the United States gross domestic product has resumed growing, meaning that, technically, the economy is expanding again and the country is no longer in a recession.

Yet few are celebrating, as jobs losses continue to accumulate on a weekly and monthly basis, bringing the national unemployment rate closer to 10 percent. Lingering instability and unexpected fluctuations in job losses make it difficult to forecast when hiring will resume, but some sources claim conditions will get even worse before they get better.

According to the latest weekly claims report from the U.S. Department of Labor, seasonally adjusted new initial claims for unemployment came to 530,000 for the week ending October 24, a decrease of 1,000 from the previous week's total, but 10,000 claims higher than the week ending October 10 and 45,000 more than in the same period last year.

The unemployment rate rose in 23 states in September, bringing the national rate to a 26-year high of 9.8 percent, and elevating concerns that the next monthly unemployment report (expected this Friday) will push the rate above 10 percent.

"The tepid pace of recovery, combined with productivity increases that make it possible for businesses to handle more demand with fewer employees, is a big reason why firms have continued to shed employees even as the recession abates," the Wall Street Journal reports (subscription required).

Despite increased productivity, compensation growth remains sluggish. According to the Labor Department's latest Employment Cost Index report, compensation costs for civilian workers increased 1.5 percent over the 12 months ending in September 2009, down from the 3.1 percent increase from the preceding 12-month period.

Among private industry workers, compensation growth, including wages, salaries and benefits, remained largely static over the 12 months ending this September, showing the smallest percentage change since the data series began in 1980.

"Workers in general don't have a lot of bargaining power and businesses, in a high-unemployment environment, are using less overtime and in some cases part time [to contain costs]. For those who are getting wage increases, companies are skimming them down," Stuart Hoffman, chief economist at PNC Financial Services Group, recently told Bloomberg News.

Many of the difficult employment conditions stem from challenges facing small businesses, which traditionally drive new job growth in the U.S. Much of the country's economic recovery and job creation hinge on banks taking more risk and restoring the flow of credit to businesses. In addition to lingering concerns about the direction of the overall state of the economy and the difficulty of obtaining credit in the current environment, small-business owners are delaying hiring due to uncertainty regarding health-care reform plans under review in Congress.

"The economic contraction is of course the prime force driving companies to lay off workers. But a health-care overhaul grinding through Congress could bring unknown new obligations to insure employees," the Journal notes in a separate report.

But not all employment indicators are negative, and certain signs point to possible stabilization in the job market in the coming future.

According to an October survey of manufacturing CFOs conducted by Grant Thornton LLP, "only 22 percent expect to reduce headcount over the next six months, a vast improvement over the nearly 47 percent in the earlier study that indicted they were reducing headcount."

Similarly, a survey from the National Association for Business Economics released last month found that the percentage of firms expecting to add new jobs rose from 6 percent in July to 12 percent in October, while the percentage of firms cutting their payrolls fell from 36 percent to 31 percent over the same period.

On NBC's Meet the Press on Sunday, Treasury Secretary Timothy Geithner said economists think the country will "start to see net jobs created at the beginning of the year," adding that the U.S. economy could see jobs added "in the first quarter some time." (Source: Agence France-Presse)

For the large number of unemployed workers in the U.S., Congress is introducing a proposal to extend unemployment aid an additional 14 weeks for those who have exhausted their benefits, while those who are out of work in states with an unemployment rate above 8.5 percent would gain up to 20 additional weeks, the New York Times' government blog The Caucus reports.

"Acting on a proposal that has been sought by business leaders, the Senate plan would also allow businesses to offset profits in the last five years with current losses, possibly reducing the tax liability of companies and freeing up some capital," the Times says.

Despite government efforts to stabilize the job market, most analysts expect that employment conditions will remain challenging in the near future. While new hiring is expected to lag initially, once businesses start to make profits again and invest again, rehiring will follow.

See also

U.S. Employment Prospects Remain Mixed

Most Economists Claim Recession Has Ended

Administration Focuses on Aiding Small Businesses

Resources

Unemployment Insurance Weekly Claims Report U.S. Department of Labor, Oct. 29, 2009

Economy Snaps Long Slump by Conor Dougherty The Wall Street Journal, Oct. 30, 2009

Employment Cost Index — September 2009 U.S. Department of Labor, Oct. 30, 2009

U.S. Third-Quarter Labor Costs Rise 0.4% as Wage Growth Stalls by Courtney Schlisserman Bloomberg.com, Oct. 30, 2009

Political Uncertainty Puts Freeze on Small Businesses by Gary Fields The Wall Street Journal, Oct. 28, 2009

...One-Third of Manufacturing CFOs Predict Recession Won't End Until Second Half of 2010 Grant Thornton LLP, Oct. 20, 2009

...Pickup in Hiring and Capital Spending Planned over Next Six Months National Association for Business Economics, Oct. 26, 2009

Employment Turnaround Likely at Start of 2010: Geithner Agence France-Presse, Nov. 1, 2009

Senate Takes Up Unemployment, Aid for Home Buyers by Carl Hulse The Caucus (The New York Times), Nov. 2, 2009

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