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Job growth -- is this it?
Everyone's been waiting for the sluggish job market to break out; that may not happen any time soon.
February 15, 2005: 1:31 PM EST
By Steven Radwell, CNN/Money deputy managing editor
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NEW YORK (CNN/Money) - Waiting for the job market to bust out? Well, get ready for a long wait.

There's little dispute that U.S. job growth has been well below normal since the last recession ended in November 2001.

But rather than strengthening anytime soon, the labor market may not pick up much, or at all, at least for the foreseeable future, a growing number of labor market experts and Wall Street economists are saying.

"I do think we're in a new era now in which job growth will remain sluggish for quite some time," former Labor Secretary Robert Reich said in a comment e-mailed to CNN/Money.

"The times they are a-changing," added David Wyss, senior economist at Standard & Poor's, who's been arguing that the changes affecting the job market -- and the broader economy -- started after the previous recession that ended in 1991.

The economy created nearly 2.2 million jobs last year, an improvement from the 2002-2003 period, when there was a net loss of jobs. But that's still well below the average of any recovery that's lasted this long since World War II, according to Anthony Chan at JPMorgan Fleming Asset Management.

"We're basically missing 5.1 million jobs at this stage of the expansion. You could even call it the case of the missing jobs," Chan said, noting the job market's now in a "different paradigm."

Jared Bernstein of the left-leaning Economic Policy Institute estimated that the number was closer to 3 million.

With 132.6 million Americans working, according to the Labor Department, and another 7.7 million unemployed, the labor market in the United States is obviously vast and enormously complex.

Among the factors hurting job growth in the current expansion: companies facing stiff competition from overseas, especially from China and Latin America; productivity growing at better than double the historical average; jobs moving overseas in services and not just in manufacturing; the growing use of temp workers; and the nation's shrinking manufacturing base.

"I can't see the state of job creation changing for the better anytime soon," said Richard Yamarone, chief economist at Argus Research in New York. He noted that already cautious employers are getting hit by the rising cost of oil and other raw materials, on top of health care costs growing well above the pace of inflation.

With costs rising and profit growth under pressure, "that's going to squeeze hiring," added Yamarone, who's been closer than many Wall Street economists to accurately forecasting the sluggish job growth over the last year to 18 months.

White House cuts forecast

The growing consensus that job creation is going to be weaker rather than stronger has become so widespread that the Bush administration's Council of Economic Advisers in December quietly cut its forecast for job growth this year to 175,000 jobs a month. Last year, in its forecast for 2004, the CEA had been forecasting about 300,000 new jobs a month. Job growth last year ended up at about 180,000 a month.

Many Wall Street economists are now in that ball park.

But Ed McKelvey, senior economist at Goldman Sachs, who's forecasting a pickup in job growth to about 200,000 a month this year, said he's less confident about the jobs forecast that he is about, say, the Fed continuing to raise interest rates.

It's not just sluggish job growth that has some economists worried.

The labor market's "participation rate" -- the portion of working folks with a job or looking for one -- slid last month to its lowest level since 1988, according to the latest numbers from the Labor Department. And the number of "discouraged" workers -- people who quit looking because they couldn't find jobs -- jumped 20 percent from January 2004.

Still, not everyone's convinced that the stronger job growth of past expansions is gone forever.

"It may just be that, in this slow-motion labor market that we have, a lot of younger people have opted for schooling that will take them out of the job market for a while," said McKelvey at Goldman Sachs.

"You could have made the same argument (for prolonged job market sluggishness) after the 1990-91 recession, and we had a decade of phenomenal job growth," said David Autor, an associate professor of economics and labor specialist at MIT in Cambridge, Mass. "So I'm not so pessimistic."

One reason for his relative optimism: the U.S. economy has been remarkably flexible and adaptive over the last century, partly because of our emphasis on education -- an area where we're now falling "pathetically behind," he said.

"It's by not investing sufficiently in the human capital of our workers-to-be -- in math and science in particular --that we're taking a big risk," Autor said. "That's the only structural issue -- the rest of it we shouldn't be afraid of."

Correction: A chart in an earlier version of this story did not put job growth in each of the expansions into the proper context. CNN/Money regrets the error.  Top of page

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