Slow jobs recovery is likely
10/21/2009WASHINGTON - Even with an economic revival, many U.S. jobs lost during the recession may be gone forever, and a weak employment market could linger for years.
That could add up to a "new normal" of higher joblessness and lower standards of living for many Americans, some economists are suggesting.
The words "it's different this time" are always suspect. But economists and policy makers say the job-creating dynamics of previous recoveries can't be counted on now.
Here's why:
•The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth any time soon.
•The job market is caught in a vicious circle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.
•Many small and midsize businesses still are struggling to obtain bank loans, impeding their expansion plans and constraining overall economic growth.
•Higher-income households are spending less because of big losses on their homes, retirement plans, and other investments. Lower-income households are cutting back because they can't borrow like they once did.
That the recovery in jobs will be long and drawn out is something on which economists and policy makers can basically agree, even as their proposals for remedies vary widely.
Retrenching businesses will be slow in calling back or replacing workers they laid off. Many of the 7.2 million jobs shed since the recession began in December, 2007, may never come back.
"This Great Recession is an inflection point for the economy in many respects. I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future," said Mark Zandi, chief economist and co-founder of Moody's Economy.com.
Even before the recession, many jobs had vanished or been shipped overseas amid a general decline of U.S. manufacturing. The severest downturn since the Great Depression has accelerated the process.
Many economists believe the recession reversed course in the recently ended third quarter and they predict modest growth in the nation's gross domestic product over the next few years. Yet the unemployment rate is at a 26-year high of 9.8 percent - and likely to top 10 percent soon and stay there awhile.
"Many factors are pushing against a quick recovery," said Heidi Shierholz, an economist at the labor-oriented Economic Policy Institute. "Things will come back. But it's going to take a long time. I think we will likely see elevated unemployment at least until 2014."