Clipped From The Daily Herald
Higher jobless rates could be new normal BY TOM RAUN Associated Press WASHINGTON - Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market 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 tliis 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 constcuc- tion industries helped lead the nation out of past recessions. recessions. But the carnage among Detroit's automakers and tlie surplus of new and foreclosed homes and empty commercial commercial properties make it unlikely these two industries wiU be engines of growth anytime 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 widiout that spending, businesses might see little reason to start hiiing. • Many smaO and mid-size businesses are still struggling to obtain bank loans, impeding impeding their expansion plans and constraining overall economic growtli, • Higher-income households households are spending less because of big losses on their homes, retirement plans and other invesUnents. Lower- income households are cutting cutting back because they can't borrow like they once did. That the recovery in jobs wiE be long and drawn out is something on which economists economists and policy makers can basically agree, even as their proposals for remedies vary widely. Retrenching businesses will be slow in hiring back or replacing workers they laid off. Many of the 7.2 million jobs the economy has shed since tlie recession began in December 2007 may never come back. "This Great Recession is an inflection point for the economy economy in many respects. I think the unemployment rate will be permanently higher, or at least higher for tlie foreseeable future," said Mark Zandi, chief economist and co-founder of Moody's Economy.com. "Tlie collective psyche has changed as a result of what we've been tlirough. And we're going to be different as a result," said Zandi, who formerly advised Sen. John McCain, and now is consulted by Democrats in the administration administration and in Congress, Even before tlie recession, many jobs had vanished or been shipped overseas amid a general decline of U.S. manufacturing. manufacturing. The severest dovm- tuni since tlie Great Depression Depression has accelerated tiie process. Many economists believe the recession reversed couise in tlie recently ended third quarter and they predict modest modest growtli in the nation's gross domestic product over tlie next few years. Yet tlie unemployment unemployment rate is currently at a 26-year high of 9.8 percent — and likely to top 10 percent soon and stay tliere a while. "Many factors are pushing against a quick recovery," said Heidi Shierholz, an economist at the labor-oriented Economic Economic Policy Institute. "Things wall come back. But it's going to take a long time. I think we will likely see elevated unemployment unemployment at least until 2014." At best, many economists see an economic recovery without a return to moderate moderate unemployment. At worst, they suggest the fragile recovery recovery could lose steam and drag the economy back under for a double-dip recession, "We will need to grind out this recovery step by step," President Barack Obama said earlier this month. Obama and, congressional Democrats are having a hard time agreeing on how to keep the recoveiy going and help millions of unemployed workers workers — short of another round of stimulus spending amid rising rising voter alarm over soaring federal deficits. So far, they've been unable to win even a simple three- month extension of unemployment unemployment insurance for people people in states with jobless rates above 8.5 percent. The extension easily passed die House earlier tiiis month but is bogged down in the Senate Senate over disputes over which states would get the funds. Hundreds of thousands of people have already lost their benefits or are about to lose them. Tlie Wliite House credits the president's $787 billion stimulus stimulus plan passed in Februaiy for keeping job losses from becoming even worse. Since Obama took office in January, the economy has lost 3.4 million million jobs. Republicans argue that tiie stimulus program has not worked as a job producer and is a waste of tax money, And last week, the U.S. Chamber of Commerce launched a multimillion multimillion advertising campaign to celebrate smdl business entrepreneurs — and to argue that iiirther government intervention intervention will not spur permanent permanent job growth. Chamber leaders called for creation of more tlian 20 million million new private-sector jobs over the next decade, saying it's needed to replace jobs lost in die recession and to keep pace with population growtii. "The government can support support a few jobs in the short- run" while free enterprise is the only system that can create create 20 million of them, said Thomas Donohue, the chamber chamber president. To many economists, such a goal seems unreachable given today's altered economic landscape. 'Tt's a new nonnal that U.S. growtii is going to be anemic on average for years. Right now, tiie prospect is bleak for any- tiiing otiier tiian a particularly high unemployment rate and a weak jobs-creating machine," said Allen Sinai, president of Decision Economics Inc. He says he doubts that unemployment unemployment will dip below 7 percent anytime soon. Many economists consider a jobless rate of 4 to 5 percent as reflecting a "full employment" economy, one in which nearly eveiyone who wants a job has one. After tiie 2001 recession the rate climbed to 5.8 percent percent in 2002 and peaked at 6,3 percent in 2003 before easing back to 4,6 percent for 2006 and 2007. WUl unemployment ever get back to such levels? "I wouldn't say never. But I do think it's going to be a long time," said Bruce Bartiett, a former Treasury Department economist and the author of the book "The New American American Economy: Tlie Failure of Reaganomics and a New Way Forward." "The linkage between giowtii in tile economy and growth in jobs is not what it was. I don't know if it's perma- nentiy broken or temporarily broken. But clearly we are not seeing the sort of increase in employment that one would normally expect," Bartiett said.