Barnanke Sees Meager Recovery, Meager Jobs Improvement in 2010
Fed Chairman Ben Bernanke spoke about the economy and the recession yesterday. Bernanke does not think we will have a jobless recovery that is as bad as the one following the 2001 recession but he is concerned job growth could be meager in 2010.
In response to a question from the audience, Bernanke said he doesn't see the same kind of jobless recovery in 2010 that the economy went through following the 2001 recession, in which job losses continued for nearly two years after growth returned. But he did say that he's worried job growth will be so meager next year that it won't make a dent in the unemployment rate.
Bernanke also said credit for small businesses and consumers is likely to remain strained. And he said that tighter credit will be a significant drag on the economy going forward.
We will be lucky if we have job growth in 2010. As of right now the economy continues to lose jobs. There has been recovery in the jobs market so to talk about a "meager jobs recovery" is premature as there has been no jobs recovery at all. Bernanke also said he does not see the economy slipping back into a recession but it will if there is not a jobs recovery. Consumers can't spend if they don't have an income.
What Should Laid Off Financial Professionals Due Now?
Many financial professionals are concerned about layoffs with all the upheavel in the financial markets. The Fed had to step in to save AIG. Lehman Brothers is going to file bankruptcy and Alan Greenspan is calling this the worst economy he has ever seen. An article on ERE says that some Lehman, Merrill, and AIG employees are being bombared by recruiters.
In the video below, recruiter Deborah Marcus of the Gerson Group shares some tips with the Wall Street Journal's Sarah Needleman. Deborah Marcus said there is some demand in marketing and client interfacing roles. She says there are still some hedge funds and boutique investment banks looking to bring in new talent. Marcus also talks about using a focused network of contacts as opposed to casting a wide net. She also says workers may want to consider other sectors outside of the financial industry. Job seekers may also want to look at opportunities overseas.
The August jobs report is in from the U.S. Department of Labor. The unemployment rate climbed to 6.1%. In August the economy lost 84,000 jobs in August. That makes a total of 605,000 jobs lost this year.
As CNN reports each of these final job reports as we get closer to the November elections is very significant and the presidential candidates are jumping on each report.
The jobs report immediately drew comment from the presidential candidates as well as the Bush administration.
The White House pointed to other economic readings, including last week's gross domestic product report. It showed second quarter growth jumping to a 3.3% annual rate, helped by economic stimulus checks and strong exports.
"While these (jobs) numbers are disappointing, what is most important is the overall direction the economy is headed," said the White House statement.
But the campaign of Democratic presidential candidate Barack Obama said the report points out the failure of Republican policies.
"John McCain showed last night that he is intent on continuing the economic policies that just this year have caused the American economy to lose 605,000 jobs," Obama said in a statement. "John McCain's answer is more of the same: $200 billion in tax cuts to big corporations and oil companies, and not one dime of tax relief to more than 100 million middle-class families."
One thing that could help create jobs is holiday hiring by retailers. However, retailers have a bleak outlook for sales this holiday season so they may not hire as many positions are they would during a more upbeat holiday shopping season.
It goes unseen in the jobs report that Wall Street typically follows but the New York Timesreports that many workers are losing working hours. The Times says the number of workers who have lost hours or can't find full time work accounts for 3.7% of all those employed. The Times says is up from 3% a year ago.
On the surface, the job market is weak but hardly desperate. Layoffs remain less frequent than in many economic downturns, and the unemployment rate is a relatively modest 5.5 percent. But that figure masks the strains of those who are losing hours or working part time because they cannot find full-time work - a stealth force that is eroding American spending power.
All told, people the government classifies as working part time involuntarily - predominantly those who have lost hours or cannot find full-time work - swelled to 5.3 million last month, a jump of greater than 1 million over the last year.
These workers now amount to 3.7 percent of all those employed, up from 3 percent a year ago, and the highest level since 1995.
"This increase is startling," said Steve Hipple, an economist at the Labor Department.
The loss of hours has been affecting men in particular — and Hispanic men more so. Among those who were forced into part-time work from the spring of 2007 to the spring of 2008, 73 percent were men and 35 percent were Hispanic.
If someone loses hours or gets laid off and has to accept part-time work they are going to have considerably less income. Less hours worked combined with rising inflation and you have someone who is probably going to have to find a way to cut back on spending to make up for the loss in income. As this trend continues it will have a bigger and bigger impact on the economy.
The Labor Department reported Friday that just 94,000 jobs had been created. The numbers may have improved slightly from other months but many economists are unimpressed. Mark Zandi, the chief economist at Moody's Economy.com told the New York Times that things will have to change or the economy will "come undone."
"The expansion is intact, but increasingly frayed," said Mark Zandi, chief economist at Moody’s Economy.com. The job creation numbers are "indicative of a very fragile economy that will come undone unless conditions improve soon."
The unemployment rate held steady at 4.7 percent for the third consecutive month, as a survey of households found strong growth in the number of people saying they found new jobs last month.
On Wall Street, markets barely moved yesterday, absorbing the jobs data with ambivalence. The employment picture offered assurance that the economy was not plummeting and might continue to expand, sustaining corporate profits. But those very assurances sowed worry that the Federal Reserve would feel less pressure to ease interest rates aggressively when it convened on Tuesday.
A number of market participants have urged a half-point cut in the Fed's key throttle control over the banking system, currently at 4.5 percent, but a stronger job market may make a quarter-point cut in the federal funds rate more likely.
The Times article also has a good example of what the economy is like for many workers. There are jobs but there are not many good jobs.
In Tucson, Sue Foust was sifting through options for new jobs yesterday, having been laid off from an AOL software testing site, where she worked for the last decade. Ms. Foust, 41, had been making about $65,000 a year as a software quality assurance engineer, she said. Comparable prospects seemed poor, and she was growing resigned to finding secretarial work.
"There's plenty of jobs if you want to make $10 an hour," Ms. Foust said. "I'll probably wind up taking something that pays half of what I used to."
$10 an hour is not going to be enough for most families to pay all of their bills.
A CNN article explains how wages are not matching the increase in the GDP for most workers. The article says most workers real wages (wages adjusted for inflation) have been relatively stagnant this decade.
After rising quickly in the second half of the 1990s, most workers real wages have been stagnant in the 2000s, especially since 2003
While productivity jumped almost 20 percent since 2000, the real median hourly wage of all workers rose just 3 percent in the same period. Since 2003, productivity has risen 5 percent, while the median hourly wage fell 1.1 percent.
Women saw a bigger rise in wages between 2000 and 2007, up 4.7 percent. Real median wages for men during the same period were up just 1.1 percent.
Both high school and college workers saw hourly wage gains of about 2.5 percent since 2000.
Yet, in the period between 2003 and 2007, wage gains for median workers, male and female, as well as high school and college workers have all been flat or falling.
A chart on workinglife.org shows you how wages increased very little or decreased from 2000 through 2004. The data in that chart only goes through 2004 but after 2004 things got even worse. You can see another chart in this article. This is really bad news for workers especially when you look at the incredible rise in food and gas over the past few years. Only those wage earners on the very high end of the earnings curve have been seeing much in the way of wage increases. The CNN article also says that real wages for earners in the top 95% have risen 9.4% since 2000 and 5.1% since 2003.
Last year the housing market gave a boost to the overall job market. This year that's not the case at all. MSNBC.com reports that the housing market is already weighing down job growth.
Since the middle of last year, a downturn in the U.S. housing market has taken its toll on a wide group of people and companies, clobbering homebuilders, condo flippers, borrowers with weak credit, lenders who oversold loans, and just about anyone with a home for sale.
Now the housing slump is hitting yet another target: housing-related jobs, a list that includes everyone from the people who build and sell houses to makers of appliances and furnishings.
That's a sharp contrast to the height of the housing boom in 2005-06, when the industry was responsible for creating some 25,000 to 50,000 new jobs every month, according to Mark Zandi, chief economist at Moodys.com.
And it could get much worse. Moodys.com's chief economist Mark Zandi also gave MSNBC.com this grim forecast.
"In the recent months it's been laying off workers at a pace of 25,000 to 50,000 per month," he said. "And I think the next couple of quarters we'll start seeing job losses of between 50,000 and 75,000 per month. ... I think the housing market is going down a whole other notch."
The MSNBC article also notes that it was a real estate downturn that brought on the recession of 1990-91. Hopefully it won't get that bad in 2007/2008.
For several years most workers have seen only very small wage increases. This year there have finally been studies showing wage growth. Unfortunately, rising energy costs are now eating into workers' increased pay according to a new study from GLobal Insight Inc.
Authored by Global Insight Inc., the report on annual wage growth prepared for the Conference of Mayors shows the average job in 2005 earned a salary of $43,500 -- a 4.6 percent increase over 2004. The spike in energy costs, however, wiped out almost one-third of those increased earnings.
"We have known for months that families have been feeling the pinch from rising cost of gasoline. Now because of the latest Metro Economy Report, we see that the high cost of gasoline has significantly impacted people's disposable income -- despite recent wage gains. This is concrete proof that our nation needs a comprehensive energy policy that addresses these new economic realities," said Long Beach Mayor Beverly O'Neill, president of the U.S. Conference of Mayors.
Total energy expenditures in the U.S. in 2005 represent 5.9 percent of all consumer spending last year; and energy expenditures in 2005 increased a whopping 20.3 percent over 2004. U.S. households spent $287 billion to fuel cars and trucks, and $225 billion for heating, cooling, and electricity -- an amount equal to 9.0 percent of wages and salaries.
This compares to $230.4 billion spent by U.S. households on gasoline to power cars and trucks, and $195.4 billion spent on other energy costs in 2004 -- an amount equal to 7.9 percent of wages and salaries.
The report also illustrates the effect of rising fuel costs on consumer wage gains in individual cities. For example, the Atlanta metro area had wage increases of $1,740, but saw 45.6 percent of that gain eaten up by gasoline price increases of $792.90. In the Miami metro area, wage gains were $2,109, but gasoline price increases consumed 48.2 percent, or $1,016.10, of the increase. In Detroit, gasoline price increases were 41.7 percent of wage gains, $686 out of $1,646 wage gains. The impact was greatest in Spokane, Wash., where an increase of $549.70 in the price of gasoline ate up 78.2 percent of the area's average wage increase of $761.
Most commuters don't need a study or survye to tell them rising fuel costs are leaving them with less money to spend on what they want. You know it's a difficult economy when you finally start to see wage increases after several years of flat wages and they are quickly erased by rising energy costs and rising inflation.
Many people are still struggling to find good high-paying jobs several years after the 2001 recession. An article in the Hartford Courant illustrates the problem by telling the job woes of a few individuals:
Laid off two years ago at age 62 from a bank vice president's job, he took the $7.50-an-hour job because his health insurance was running out. He felt lucky to find it.
"I'm getting good benefits," he said.
Spolec is one of hundreds of thousands of professionals who lost their jobs during the 2001 recession and its aftermath, a long jobless recovery.
They were caught in an unusual economic downdraft, a period marked less by the sheer number of people thrown out of work - 2.7 million in all, or about 2 percent of the workforce - as by unrelentingly high rates of long-term unemployment, economists say.
The article says the economy started adding jobs again in 2003 and while some people laid-off in 2001 have found jobs many of them are lower paying and unrelated to their previous careers.
These are the stories of Spolec and other professionals for whom weeks of unemployment stretched into months, then years.
They are largely overlooked in an economy where unemployment is trending down and things are looking up for many job seekers.
Like others in their predicament, they are no longer unemployed. They work "survival" jobs while trying to climb back into their fields.
Unfortunately, the jobless recovery seems to be continuing so people may have to hold on to these "survival" jobs a while longer. The high gas prices are certainly not helping consumers or the economy either.
