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U.S. No Longer the Great Job Creation Machine
What are our job prospects? The problem in the job market going forward is not so much layoffs in the private sector, which are abating, but a lack of hiring. The federal stimulus program is offset by the estimate that there will be a 2009 budget shortfall for states, cities, counties, and school districts in the range of an astonishing $250 billion. Since virtually all states and cities have to run balanced budgets, the result will be reduced services, layoffs, and tax hikes. As Harold Meyerson points out in the Washington Post, this will reduce net government spending to boost the economy to approximately 1 percent of gross domestic product, thus diminishing the effectiveness of the government's efforts to combat the recession. And
There is a major credit crunch constraining consumer spending and squeezing small businesses. There is virtually a total freeze in credit for small businesses. This is particularly ominous because small start-ups provide most of the economy's new jobs. If these businesses can't keep credit lines open, those jobs simply disappear.
there is a major credit crunch constraining consumer spending and squeezing small businesses. There is virtually a total freeze in credit for small businesses. This is particularly ominous because small start-ups provide most of the economy's new jobs. If these businesses can't keep credit lines open, those jobs simply disappear. All this is reflected in cutbacks in the number of credit cards, credit lines, and loans from small banks. Meanwhile, the number of personal credit cards for consumers is down by 150 million, and personal credit lines have been reduced by $500 billion, from $1.3 trillion to $800 billion. This trend is expected to continue. Consumer spending is off 12 percent per shopping trip. Consumers are simply not buying expensive goods; they hunt for bargains. This in turn is punishing for many small businesses with small margins.

Medium-size businesses are constrained by the risk-analysis lending of the financial world, which prefers to lend to large businesses that are deemed more creditworthy. But while these big businesses have access to financing, they are holding back in hiring because of anxiety over the Obama administration's policies on such matters as increased healthcare costs, higher taxes, more corporate regulations, and disaffecting labor policies.

The result is a new business attitude and a business model that focus less on revenue growth and more on that part of the businesses that executives know they can control: their costs. This means cutting personnel (and also advertising) to improve operating margins and reflects their lack of confidence in the growth of the economy.

The consequence is that the U.S. economy, which was for decades the greatest job creation machine in the world, is taking longer and longer to replace the jobs lost in the recession.

In the 1970s and 1980s, it took as little as one year from the end of a recession to add back the lost jobs. After an eight-month downturn that ended in March of 1991, jobs came back in 23 months. After the downturn from the dot-com bust in 2001, it took 38 months. This time, it could take five years or more to recover all of the 8 million-plus jobs lost since the "Great Recession" began.

Employment will continue to fall into 2010, and perhaps through it. If the jobless rate peaks at around 11 percent, we will be lucky to begin a proper jobs recovery before the end of 2010.

What accounts for the growing lag times? Fundamentally, it is that households and businesses are stepping back from spending levels that were artificially pumped up by debt. American consumers realize they had been on a binge. The ratio of consumer debt to the nation's GDP rose to 97 percent in the first quarter of this year, up from 45 percent in 1975. Every dollar that scared consumers save is one less for consumption and output.

Then there are all those young people just entering the labor market. To keep the jobless rate from rising, the United States needs to add a net 150,000 jobs a month. No one expects we will generate anywhere near that growth.

Furthermore, in the past decade, globalization and deregulation have forced companies to focus far more on productivity and on controlling costs. This means they seek to produce far more with the workers they have. Simultaneously, factory automation is wiping out assembly-line work, and information technology is making many white- and pink-collar jobs extraneous. Finally, companies are moving operations abroad to take advantage of cheaper labor in places like China and India. American workers are working harder, given their concern over job losses that have averaged 135,000 a month for the past three months. That's better than the 740,000 jobs lost in January, but it is still relatively high at this point in a recession.

We must face the hard fact that many of the lost jobs are gone forever. In this cycle, 56 percent of the currently unemployed have permanently lost their jobs, according to Ned Davis Research. These people have lost their jobs because plants have closed, work has moved overseas, or companies have gone out of business. This compares with an earlier peak in 1982 and 1991 of 43 percent.
Posted by: GolfBravoUSMC 2009-12-06
http://www.rantburg.com/poparticle.php?ID=285001