employment gains of late have taken the edge off people’s worst recession- ary fears, but they nonetheless remain fundamentally inadequate, far short of histor- ical norms and the very human needs of the now huge army of unemployed. In the coming year, continued economic growth should improve the situation, but only marginally.
employment increases will emerge only
slowly. By year-end 2012, more than 8% of the
workforce will likely remain unemployed.
By almost any standard the current cycli-
cal recovery has disappointed. labor markets
especially have suffered. After deep jobs cuts
during the 2008-2009 recession, business
continued to lay workers off for more than a
year into the recovery that officially began in
June 2009. The unemployment rate, which
had already risen to over 10% of the work-
force, stayed close to that terrifying height
until very late in 2010. Though hiring began
to pick up in 2011, the pace still crawled, ris-
ing barely over 130,000 positions a month on
average, far below the 300,000 to 400,000 a
month averaged in past cyclical recoveries.
unemployment remains atypically high at
over 8.5%. (see accompanying chart.) By late
2011, the nation’s payrolls still stood some 6. 3
million below their pre-recession highs.
sadly, much of what has caused this disap-
pointing performance promises to remain in
place in the new year. Real economic growth,
the ultimate driver of jobs, will almost surely
stay sluggish in 2012. Housing shows no signs
of growth and offers little reason to look for
an upturn over a 12-month horizon or longer,
for that matter. Consumers should remain
cautious, and, though they will likely in-
crease spending, they should do so only mod-
estly. Financially beleaguered state and local
governments may cease their most severe
cutbacks, especially as their tax revenues
slowly expand with the economy’s modest
growth, but they nonetheless will have to
hold back on spending. The federal govern-
ment will find itself increasingly compelled
to restrain its spending as well. And though
business acquisitions of new equipment and
export sales remain robust, these areas alone
cannot offset the sluggish picture elsewhere
barely eking Out job Growth
Monthly payroll gains in 2011 average 130,000, well below the level in past recoveries.
-1
0
1
2
3
4
5
6
7
8
9
10
11%
payroll Gains still stall
MILton EzrAtI
Senior Economist and Market Strategist
Lord Abbett & Co.
Jan-0 8
Sep-08
M ay-08
May-09
Jan-09
Jan- 10
Sep-09
900
700
500
300
100
-100
-300
-500
-700
-900
Sep- 10
M ay- 10
Monthly payroll change (thousands) Unemployment rate
Ja n-1 1
Sep- 11
M ay- 11
Source: Bureau of Labor Statistics
By MILton EzrAtI
in the economy. While the united states will
almost certainly avoid a second recessionary
dip, real gross domestic product (GDP) will
at best register an atypically slow 2% to 2½%
rate of expansion for the year.
Hiring will likely suffer still more from the
legacy of extreme caution haunting business after the financial crisis and recession.
of course, every recession has its lingering
effects on business, but this one was particularly severe. many companies in 2008-2009
were unable to finance even daily operations,
and when they turned to their usual sources
of credit, they found those lines denied or
curtailed. Having suffered so acutely, they
now seem determined to hold huge precautionary cash balances on their balance sheets
and generally resist any increase in expenses,
including hiring. uncertainties surrounding
the european debt situation, growth in China
and Washington’s fiscal direction have only
exacerbated their constraining caution.
Business also has had to cope with the
legacy of Washington’s past ambitious legislative calendar. Whether or not one approves
of the Dodd-Frank financial reform legislation or the healthcare reform law, none can
mistake that each introduces tremendous
uncertainty and makes it more difficult than
ever for business to plan. These laws are so
comprehensive and complex that even today,
months, indeed years after they passed into
law, no one can reliably estimate the expenses involved in a new hire or the future availability or cost of credit. What is more, it will
take years before all the provisions become
well enough understood for businesses to
forecast costs confidently. In this long meantime, the uncertainties will make managers
and other decision makers that much more
reluctant to expand, including hiring.
The net effect of all these influences, even
in the absence of further shocks to the system, should keep payroll gains in the range
of 250,000 to 300,000 a month at best. If a
pickup from the past year, these figures are
still smaller than in past recoveries. And
since the workforce naturally grows at about
this rate, it would be ambitious indeed to
look for the unemployment rate to fall
through 8% in 2012.
