Job recovery could be slow and weak
As losses mount, economists fear that hiring could be a problem even after the recession is over.
NEW YORK (CNNMoney.com) -- In the midst of a recession, huge job losses are expected to continue for at least several more months. But what really worries economists is that the job market could be slow to recover even when the economy begins to improve.
In the recession that began in December 2007, the economy has shed more than 1.1 million jobs. Economists expect the Labor Department's monthly employment report to show another 325,000 job losses for November when it is released Friday.
November's job losses would represent the largest monthly drop in non-farm employment in seven years, if the report meets estimates. A larger decline could represent the biggest monthly drop in more than 26 years.
The unemployment rate is expected to reach 6.8%, which would be the highest since February 1993.
All indications suggest there's little stopping jobs from continuing to plummet. ADP's monthly employment report showed private sector payrolls fell in November by 250,000 jobs from the previous month. And according to a report by outsourcing agency Challenger, Gray & Christmas, planned job cut announcements by U.S. employers soared to 181,671 last month, the second-highest total on record.
A slew of large-scale job-cut announcements came Thursday, with AT&T (T, Fortune 500), DuPont (DD, Fortune 500), Viacom (VIA) and Credit Suisse announcing they would cut a total of nearly 21,000 jobs. All cited the weak economic conditions for the cuts.
November's report will be the first glimpse at how the job market reacted after the peak of the credit crisis, reached in mid-October.
"This report will show the full impact of the credit situation, and it will be very disappointing," said John Silvia, chief economist at Wachovia. "We continue to have problems in the construction and durable goods sectors, because there's no credit to finance those big-ticket purchases."
The anticipated weak government report will also bring the current recession closer to the level of 1.6 million jobs lost in the 2001 recession. That's noteworthy, because jobs were cut in droves in 2001 during the dot.com bust, which followed a white-hot employment market during the tech boom of the late 1990s.
The job gains leading up to the current recession were much more modest, leaving less excess for employers to cut. As a result, job losses earlier in the year were steady but lower than levels typically seen in past recessions. Only in the last several months has the economy shed in excess of 100,000 jobs per month.
Hefty job losses, though worrisome, are expected in a recession. But the job market typically recovers fairly quickly, helping to grow the economy.
However, that didn't happen coming out of the last recession, and economists fear a speedy recovery is unlikely this time around as well.
"The key thing is we have a sharp recovery, with job gains that put the kibosh on foreclosures," said Lakshman Achuthan, managing director of Economic Cycle Research Institute. "What we can't afford is to have a jobless recovery like we had the last two times. My fear is not a depression, my fear is we end up with a weak recovery we really can't afford."
According to the Economic Policy Institute, the economy took four years to return to the previous peak jobs level after the 2001 recession - an unprecedented amount of time. The recovery took more than twice as long as the 21-month average of all other recoveries after 1945. Jobs weren't helped by weak economic growth toward the end of the recovery cycle.
But history will likely repeat itself coming out of this recession as well, as the economy is expected to face a number of headwinds going forward.
Lyle Gramley, a former Federal Reserve governor and current Stanford Group economist, said the job market will take a long time to bounce back. He said the credit crunch will thaw very gradually and the past two years' deep housing market declines will yield a drawn-out recovery.
An employment recovery may be most affected by lower consumer spending, which accounts for more than two-thirds of the nation's gross domestic product.
"Consumers are going through a major change in their spending and savings habits," said Gramley. "Throughout the housing bubble, consumers had a savings rate of zero, relying on the rising price of their homes. Now they're saving money for the future instead of spending it."
Furthermore, a speedy rebound in employer confidence seems unlikely after the government spent trillions of dollars in an attempt to rescue the economy from one of history's deepest credit crises. Employers will likely be hesitant to hire even if the economy begins to rebound.
"If Obama gets his stimulus plan through, we may come out of this a bit quicker in the housing, construction, energy and infrastructure industries," said Silvia. "But those other sectors are going to face a very slow recovery."