Unemployment Nears 10 Percent As Rebound Remains Slow

Demonstration organized by the Bail Out the People Movement (BOPM) outside Bank of America on April 3, 2009 in New York City. (Photo: Alan Pollock)
Originally uploaded by Pan-African News Wire File Photos

Unemployment nears 10 pct. as rebound remains slow

By CHRISTOPHER S. RUGABER, AP Economics Writer

WASHINGTON – The economy is rebounding from its deepest slump since the 1930s, but it probably won't seem that way when the government releases its monthly employment report on Friday.

Employers aren't expected to start adding jobs for several more months. Many are skeptical about the strength and sustainability of the recovery,

The nation's economy probably lost a net total of 175,000 jobs in October, pushing the unemployment rate to 9.9 percent, according to a survey of Wall Street economists by Thomson Reuters. The Labor Department report is scheduled for release at 8:30 a.m. EST.

Most economists think the rate will eventually surpass 10 percent, a level last seen in June 1983.

The economy grew at a 3.5 percent annual rate in the July-September quarter, the government said last week, the strongest signal yet that the recession has ended. But that alone won't spur rapid hiring, raising the likelihood of a "jobless recovery."

"You need explosive growth to take the unemployment rate down," said Dan Greenhaus, chief economic strategist for New York-based investment firm Miller Tabak & Co.

Greenhaus said the economy soared by nearly 8 percent in 1983 after a steep recession, lowering the jobless rate by 2.5 percentage points that year. But the economy is unlikely to improve that fast this time, as consumers remain cautious and tight credit hinders businesses. In fact, many analysts expect economic growth to moderate early next year, as the impact of various government stimulus programs fades.

On Capitol Hill, the House on Thursday sought to bolster the economy by approving a $24 billion measure that expands a popular homebuyers' tax credit and extends unemployment insurance for 14 to 20 weeks. The additional jobless benefits are intended to prevent almost 2 million recipients from running out of aid during the upcoming holiday season. It is the fourth extension of benefits during the recession and means that unemployed workers in some states can claim up to 99 weeks of support, a record.

The Senate approved the bill Wednesday and President Barack Obama is expected to sign it.

On Wall Street, a better-than-expected jobless claims report and an upbeat forecast from Cisco Systems Inc. buoyed investors Thursday. The Dow Jones industrial average added nearly 204 points to 10,005.96, and broader indexes also gained.

Still, jobs likely will remain scarce even as the economy improves. The uncertainty surrounding the pace of the recovery has made many employers reluctant to hire, economists said. And many companies have cut hours for workers still on their payrolls, which means they can add those hours back before hiring new people.

Diane Swonk, chief economist at Mesirow Financial, said that small businesses, a primary engine of job creation, still face tight credit and don't have the cash reserves to support extra workers.

Fein Tool North America, a Cincinnati company that supplies auto parts manufacturers, has cut about 100 workers, or 33 percent of its staff. But Fein President Ralph Hardt said the company can still fill its orders by using more overtime shifts and temporary workers.

Hardt said he plans to slowly rehire once the economy picks up again. "If I see signs of recovery, I am going to hire back, but I am going to be very prudent," he said.

The recoveries following the last two recessions in 1991 and 2001 also were considered "jobless" as the unemployment rate didn't peak until 15 months and 19 months, respectively, after they ended.

Economists cite several reasons why job growth is increasingly lagging recoveries. To begin with, layoffs are more likely to be permanent, compared with temporary furloughs by manufacturers in earlier downturns. And globalization has made it easier for companies to hire overseas when rebounds begin.

Many companies also are squeezing more production from their existing work forces. Productivity, the amount of output per hour worked, jumped 9.5 percent in the third quarter, the Labor Department said Thursday.

That's the sharpest increase in six years and followed a 6.6 percent rise in the second quarter. The increases enable companies to produce more without hiring extra workers.

Still, many economists saw a bright side: companies can only drive their existing workers so far. Eventually, they will have to hire more people as the economy improves.

"You just can't get blood from a turnip," Swonk said.

The Labor Department said Thursday that new jobless claims fell to 512,000 last week, the lowest level in 10 months.

Economists closely watch initial claims, which are considered a gauge of the pace of layoffs and an indication of employers' willingness to hire new workers. Claims remain well above the roughly 400,000 that economists say will signal job creation.

The Federal Reserve, meanwhile, said Wednesday that it will keep a key interest rate at a record low level of nearly zero for an "extended period" in order to support the economy.

The central bank said economic activity has "continued to pick up," but Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and tight credit could restrain the rebound in the months ahead.
___

Associated Press Writer Jim Abrams contributed to this report.