So many jobs have been lost that the U.S. must run hard just to keep from losing more ground. Despite the election-year emphasis on job creation by both parties, the short-term outlook is bleak.
While many economists believe the recession is technically over, nearly 15 million Americans remain unemployed. Six million of them have been out of work for more than half a year.
President Barack Obama is asking for almost $300 billion more for recession relief and job formation. The House last December passed a $154 billion spending bill focused on jobs. The Senate is due to debate a far more modest version on Monday, but appears bogged down in partisan bickering.
With or without new legislation, reducing a jobless rate that’s now just under 10 percent to prerecessionary rates of about half that won’t happen soon, especially as government efforts to prop up the economy begin to wind down.
It could take up to five years or more just to get back to even.
There are limits to how many jobs can be created by government action — either directly or with tax and other incentives for the private sector — and how quickly.
“We’ve gone though a period of enormous job loss,” said Robert Shapiro, a former adviser to President Bill Clinton and now chairman of Sonecon, an economic advisory firm.
“The long-term problem is exacerbated by the fact that credit’s still not available because we really haven’t reformed the financial system. People don’t have confidence in the future and people are poorer so demand is down. All these things are coming together,” Shapiro said.
Returning to prerecession employment levels and keeping up with working-age population growth will require the creation of 10 million or more jobs.
It’s a very big order. Under the administration’s own estimate, the economy will create an average of just 95,000 jobs a month this year; that’s not enough to make much of a dent in the jobless rate.
“You can argue, rightly, that we haven’t made as much progress as we need to make when it comes to spurring job creation,” Obama acknowledged last week in marking the first anniversary of his $787 billion stimulus package.
When he took office, the jobless rate was 7.6 percent. After topping 10 percent in the last three months of 2009, it retreated to 9.7 percent in January. The White House predicts it will stay above 9 percent well into 2011.
Senate Democratic leaders were struggling to build support for a pared-back $15 billion jobs bill that would exempt companies from paying Social Security payroll taxes for new hires, fund highway and public works projects and extend tax benefits to small businesses.
Efforts to craft a larger, bipartisan $85 billion package that included more GOP-supported business tax breaks collapsed amid Senate infighting.
Republicans are planning election attacks intended to club Democrats for lack of progress on jobs and portray the stimulus measure as ineffectual and wasteful.
House Minority Leader John Boehner, R-Ohio, keeps asking, “Where are the jobs?”
Well, where are they?
There are some crucial reasons why jobs are so slow to return this time:
• While employment always lags other parts of the economy in bouncing back from recessions, this time the depth and length of the worst downturn since the 1930s means the process will take extra long.
• Projected near-term growth isn’t strong enough to speed the process. Generally it takes a 2 percentage point rise in the gross domestic product above a “normal” level of about 2.5 percent to drive the unemployment rate down each single percentage point. With unemployment near 10 percent and GDP generally forecast to grow at no more than 3 percent to 4 percent, it could take five or more years for employment to get back to prerecession 2007 levels.
• Continuing weakness in home construction and U.S. auto manufacturing removes two major engines of past recoveries from the equation.
• By holding interest rates at historic lows for so long, the Federal Reserve has lost its usual power to jump-start job creation by slashing interest rates. Instead, it must now weigh gradually raising them to keep potential inflation at bay.
• The demographics are different: Male heads of households were among the hardest hit by layoffs and are having the hardest time finding new work; a generation of baby boomers is reaching retirement age, yet many are opting to hold onto their jobs.
“They’re delaying retirement, in part because they looked at their 401(k)s and decided they couldn’t afford it,” said David Wyss, chief economist for Standard & Poor’s in New York. That means fewer openings for younger people looking for work.
Wyss said he doesn’t see a return to prerecession employment rate until at least 2015 at the earliest.
He noted that while jobs bounced back fairly quickly after post World War II recessions through the 1980s, it has taken much longer in more recent recessions. For instance, after the relatively mild eight-month recession in 2001, the jobless rate kept rising for 19 more months.
The recession-dating National Bureau of Economic Research said the recession began in December 2007. It has not yet set an end date.
Christina Romer, head of the White House Council of Economic Advisers, agrees it could be years before employment levels return to normal, even though the White House forecast for four years of growth of 4 percent or higher is rosier than those of private forecasters.
“There’s probably not been — for a very long time — as great a set of economic challenges” as the country endured the past two years, Romer said.
As to forecasts, who knows?
The White House, after all, projected in early 2009 that unemployment would not exceed 8 percent.
“The truth is we don’t have a crystal ball,” Romer said of that miss.
Economist Wyss sympathizes. “One thing you learn when you do forecasting is that it’s not whether you’re going to be wrong. It’s just how far you’re going to be wrong.”