U.S. economy to grow too slowly to create many jobs, forecasters say
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- The U.S. economy is limping -- not sprinting -- out of the Great Recession of 2008 and 2009.
While the economy is likely to grow at a steady but unspectacular 3% pace in 2010, the prospects for significant job growth are dim and the unemployment rate could still be in the 10% neighborhood at this time next year, economists say.
Growth of 3% would be far slower than is usual after a steep recession (the economy grew nearly 10% in the year following the 1958 recession), but it would be slightly stronger than the 2.8% average of the past 20 years.
Above-trend growth "never felt so bad," wrote economists at JP Morgan Chase. "Growth will not be boomy. And growth will not go far in returning the economy to healthy levels of activity."
Still, it's expected that the economy will begin to create some jobs again in 2010, after two years of month-after-month declines that -- including anticipated downward revisions -- total a loss of more 8 million jobs.
According to the median forecast of economists surveyed by Blue Chip Economics, about 1.1 million nonfarm payroll jobs will be created next year. The consensus expects the unemployment rate to be 9.9% a year from now.
Three-percent growth "won't generate enough job growth to do much more than keep unemployment from rising further," wrote Tim Duy, an economics professor at the University of Oregon. Read more on Duy's Fed Watch blog.
Remember, the adult population grows by about 2 million a year, which means the economy needs to create about 1.3 million jobs every year to satisfy all those who want to work. The economy needs to grow at a pretty fast clip to create those jobs, because productivity improvements mean that we can produce about 2% more each year with the same level of employment.
It could take years to bring the unemployment rate down to 5% or 6%.
Working-class squeeze
The recession battered workers. The credit squeeze, the implosion of the housing bubble, weak demand at home and abroad, and the relentless imperative to cut costs and preserve margins have put more than 15 million people on the unemployment lines. The official jobless rate has jumped from 4.4% to 10%, while more than 9 million Americans have been limited to part-time work even though they want to work full time.
Typically, after such a steep recession, job growth would snap back quickly as firms ramp up production to meet the desires that were repressed during the downturn.
This time, however, the lingering impact of the financial crisis will mean less consumption, less investment, and less hiring than normal.
Banks and households both have more debt than they desire, so they won't be lending and borrowing as usual.
Economists at Goldman Sachs figure the unemployment rate won't peak until the middle of 2011 and will drop back to 10.5% by the end of 2011. That's at least two more years of remarkably high unemployment.
