Fears grow over length of US jobs crisis

Saturday, 4 December 2010 00:01 -     - {{hitsCtrl.values.hits}}

WASHINGTON, (AFP) - The latest snapshot of the US labor market due Friday was expected to show painfully high levels of unemployment persisting, in more troubling news for President Barack Obama.

Economists expect the November report will show a jobless rate stuck at 9.6 percent for the fourth consecutive month, as millions of Americans struggled to get back to work.

Analysts believe the private sector created around 140,000 jobs in November after a strong showing in October, when 159,000 jobs were added. But this growth is unlikely to dent the stubbornly high jobless rate.

With the employment market unable to untether itself from recession, the jobless rate has remained above nine percent for the last 18 months.

While that high rate of joblessness is a constant worry for the eight-plus million Americans who lost their jobs during the crisis, policymakers are increasingly concerned about how long the trend has persisted.

Massive government stimulus plans, while alleviating the worst ravages of the downturn, have failed to bring unemployment levels into line with those seen over the last decade.

During the 2000s, unemployment rates largely bounced between four and six percent until the Great Recession.

Federal Reserve Chairman Ben Bernanke this week warned that entrenched high levels of unemployment could have a “very long-term effect” on the US economy.

Job creation, he said, is “probably the most important economic issue facing America today.”With nearly 40 percent of the jobless unemployed for more than six months, fears are growing that high jobless rates may be more than a temporary result of a brutal recession.

“This is very unusual and very worrisome,” Bernanke said, warning workers could become detached from the workforce, skills could erode over time and firms become more skeptical about the unemployed.

“This could have a very long-term effect on people’s wages, on their employability,” he added. Economists say Bernanke is right to worry.

“We expect the unemployment rate to average 9.7 percent through the first quarter of 2011,” Macroeconomic Advisers recently told clients.

Outlining its projections for 2011, Swiss bank UBS saw “only a slow drop in the unemployment rate to 9.0 percent by the end of 2011.”But there are a few reasons for optimism.

“The data over the last month have solidified the notion that labor demand is slowly but surely perking up,” said Stephen Stanley, chief economist at Pierpont Securities, pointing to a drop in new claims for unemployment benefits and growth in the factory and service sectors.

“The worst days, from both an economic and a policy standpoint, are past,” he added.

On Wednesday, payrolls firm ADP reported US private sector employment saw strong gains in November, with payrolls expanding by 93,000 -- the largest jump in three years.

The 10th consecutive month of gains offered some hope that the jobs sector is slowly on the mend, but it is unlikely to be quick enough.

“Employment gains of this magnitude are not sufficient to lower the unemployment rate,” ADP warned.

With Congress frozen by partisan politics and gripped by fears about US debt levels, Obama has hoped to lower the unemployment rate by clinging on to what government stimulus still exists.

The White House warned that Congress’s refusal to extend unemployment benefits would damage the economy as two million Americans will see their incomes slashed.

“Extending this support to those hardest hit by this crisis is not only the right thing to do, it’s the right economic policy,” said top Obama adviser Austan Goolsbee.

“Letting millions more Americans fall into hardship will hurt our economy at this critical point in our recovery and immediately undermine consumer spending.”There are also fears that cuts to federal, state and local government funding could raise unemployment.

“There has been concern in the market that weakness in hiring at the state and local level could be a big depressant on the economy going forward,” said Deutsche Bank analysts.

“State and local government workers currently number approximately 19.4 million.”