Fewer layoffs expected as recession winds down

[August 07, 2009]  WASHINGTON (AP) -- First, the good news. Workers probably got slapped with fewer pink slips in July as the worst recession since World War II winds down.

Now, the reality check. A paucity of job openings means nearly 15 million unemployed Americans are still looking for jobs, and their ranks are likely to keep growing into 2010.

Labor Department data due out Friday is expected to show job losses slowing in July to a pace of around 320,000, with unemployment rising to 9.6 percent, up from 9.5 percent the previous month. If the job-loss estimate is on target, it would be a heartening improvement from June's 467,000 job losses -- and the slowest pace for job losses since August 2008.

Slower job losses are anticipated because companies aren't cutting investment and spending as drastically as they had been during the depths of the recession which came in the final quarter of last year and carried over into the first quarter of this year. And, recent barometers have shown some improvements in manufacturing, housing and construction activity.

The government reported last week that the economy shrank at a pace of just 1 percent from April-to-June, the strongest signal yet that the recession may be ending.

Many analysts predict the economy could start growing again in the current July-to-September quarter. And, the Fed recently observed that the economy is finally showing signs of stabilizing in some regions of the country -- especially in parts of the Northeast and Midwest -- bolstering hopes of a broader-based recovery this year.

However, the anticipated slowdown in layoffs won't prevent the unemployment rate from rising for the 10th month in a row and to the highest level in 26 years.

The good news, bad news picture in the labor market suggests that employers are feeling more comfortable about slowing down firings but still aren't ready to ramp up hirings.

Companies won't kick up hiring until they are confident a recovery will have staying power. And, the anticipated recovery is expected to be slow. Exactly how it unfolds will hinge partly on the behavior of consumers, whose spending accounts for the single-largest slice of economic activity.

Given rising unemployment, recession-ravaged investment portfolios, and, in some cases, stagnant or falling wages, they are staying cautious.

Fresh evidence of that came Thursday when major retailers reported sluggish sales for July, raising concern about sales during the back-to-school shopping season.

Among the disappointments were Macy's Inc. and teen retailers Abercrombie & Fitch Co. and Wet Seal Inc. Among the few bright spots was discounter TJX Cos., operator of the T.J. Maxx and Marshalls chains, which reported a sales gain that exceeded Wall Street estimates.

Still, the worst of the job cuts have passed.

The deepest job cuts of the recession came in January, when 741,000 job disappeared, the most in any month since 1949. The economy lost an average of 691,000 jobs each month during the first quarter. That slowed to an average of 436,000 a month in the second quarter. Analysts predict that companies will continue to ax jobs through this year, but they hope that the pace of those reductions will ebb.

Even if that happens, the unemployment rate is likely to top 10 percent this year. Some Federal Reserve officials think it could rise as high as 10.6 percent in 2010. The post-World War II high was 10.8 percent at the end of 1982, when the country suffered through a severe recession.

An elevated unemployment rate could become a political liability for President Barack Obama when congressional elections are held next year. The last time the unemployment rate topped 10 percent, the party of the president -- then Ronald Reagan's GOP -- lost 26 House seats in the midterm elections in 1982.

Obama has urged Americans to be patient and give time for his $787 billion stimulus package of tax cuts and increased government spending to take hold. Most of the money will flow in 2010.

When the economy is healthy, employers add a net total of around 125,000 jobs a month just to keep the unemployment rate stable. To get the jobless rate down to a more normal 5 percent range, it would take stronger job growth -- of at least 200,000 jobs a month. Economists say it might take until 2013 to drive down the unemployment rate to 5 percent.

"Although the economy seems to be at a turning point, we're not at a turning point for the labor market. That is some way off," said Brian Bethune, economist at IHS Global Insight.

[Associated Press; By JEANNINE AVERSA]

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