Job losses from Great Recession about to get worse

[February 05, 2010]  WASHINGTON (AP) -- Job losses during the Great Recession have been huge and they're about to get bigger.

When the Labor Department releases the January unemployment report Friday, it will also update its estimate of jobs lost in the year that ended in March 2009. The number is expected to rise by roughly 800,000, raising the number of jobs shed during the recession to around 8 million.

The new data will help illustrate the scope of the jobs crisis. Analysts think the economy might generate 1 million to 2 million jobs this year. And they say it will take at least three to four years for the job market to return to anything like normal.

"It's going to take a long time to dig out of this hole," said Julia Coronado, senior U.S. economist at BNP Paribas.

Wall Street economists expect the January report will show a tiny increase of 5,000 jobs. That would be only the second monthly gain since the recession began. But it probably wouldn't be enough to hold down the unemployment rate, which is forecast to rise to 10.1 percent. That would match October's 26-year high. And it would be the fourth-straight month of double-digit joblessness.

The Labor Department's revisions on employment levels are done every year. They are based on unemployment insurance tax data that companies submit to states.

Jobs remain scarce even as the economy is recovering: Gross domestic product, the broadest measure of the nation's output, has risen for two straight quarters. GDP rose by 5.7 percent in the October-December quarter, the fastest pace in six years.

But hiring is still lagging. Many economists say businesses are reluctant to add workers because it's not clear whether the recovery will continue once government stimulus measures, such as tax credits for home buyers, end.

The debate over health care reform and the scheduled expiration of some Bush administration tax cuts at the end of this year may also cause companies to restrain hiring, many economists said.

"Until some of these uncertainties from Washington get cleared up, businesses, particularly small businesses, are going to be loath to do any additional hiring," said Hank Smith, chief investment officer at Haverford Investments.

High unemployment is likely to hold back consumer spending, which has led most recoveries in the past. That's why many economists think the current rebound will be weak.

Public concern about persistent unemployment has forced President Barack Obama and members of Congress to shift their attention to jobs and the economy and away from health care reform. The Senate will begin working Monday on legislation that would give companies a tax break for hiring new workers, Majority Leader Harry Reid said Thursday.

The budget plan Obama released this week projects unemployment will still be very high -- 9.8 percent -- by the end of this year.

Instead of adding workers, many companies are squeezing their existing work forces to produce more. Productivity rose by a seasonally adjusted 6.2 percent in the fourth quarter, the Labor Department said Thursday, above analysts' expectations of a 6 percent rise. That was the third straight quarter of sharp gains.

Productivity often increases at the end of recessions as companies ramp up output before hiring new workers. Rising productivity can raise living standards in the long run. But it can also make it easier for companies to put off adding jobs.

A separate Labor Department report on initial claims for jobless benefits said claims rose unexpectedly last week by 8,000 to 480,000. The rise in claims was the fourth in the past five weeks. It disappointed economists, who thought claims would resume a downward trend evident in the fall and early winter. The four-week average, which smooths fluctuations, rose for the third straight week to 468,750.

Most economists say claims need to fall to about 425,000 or below for a month to signal that employers are stepping up hiring.

Still, some positive signs emerged in the productivity report. Hours worked in the fourth quarter rose 1 percent. That was the first increase since the second quarter of 2007. Output rose 7.2 percent, the largest increase since the third quarter of 2003.

To continue increasing production, economists say companies will eventually have to start adding jobs again. That should bring productivity gains back down toward their long-run average of about 2.5 percent.

"You can push your workers but so far," said Anika Khan, an economist at Wells Fargo Securities. "At some point businesses have to begin to hire."

But the main question is when. The economy could begin generating net job gains as early as March, Khan said. But they won't be enough to hold down the unemployment rate. Wells Fargo expects the rate to peak at 10.5 percent in the second half of this year.

[Associated Press; By CHRISTOPHER S. RUGABER]

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