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CHICAGO
— Investors have been hit by a whiff of the "new
normal," and the implications for employment are
not pleasant.
Instead
of people going back to work, as optimists thought they
would be as the economy improves, unemployment appears
to be ingrained, with no sign of a letup. Experts have
begun to question the theories that suggested a
turnaround in joblessness was near.
"It's
very possible that this lasts longer than
expected," said
Zach Pandl
, an economist at
Nomura Securities
.
Productivity
is skyrocketing and corporate profits have rebounded —
all conditions that optimists theorized a couple of
months ago would spur a rebound in jobs in 2009 and help
bring the recession to an end.
But the
Labor Department
said Tuesday that job openings have fallen. And other
recent government figures show that unemployment would
be roughly 17 percent now, rather than 10 percent,
except for people who given up looking for work or
settled for part-time jobs.
"We
aren't sure why" employment hasn't rebounded as
expected, Pandl said. Like many other economists, he has
responded to disappointing data by estimating high
unemployment for the near future. He envisions 10.1 to
10.3 percent unemployment early this year, and then
"a very slow" improvement, with perhaps 9
percent unemployment, at best, at the end of this year.
And
that's with the help of a million jobs created by the
federal government to conduct the 2010 census.
Renowned
Pimco bond fund manager
William Gross
outlined more than a year ago what he called the
"new normal" — that remnants from the
financial crisis would crimp the economy for years,
leaving the employment rate at 8 percent through much of
the decade and economic growth at a modest 2 percent.
The view
has been challenged by analysts who said jobs would pop
back in response to corporate growth and productivity
gains.
Now, many
investors aren't so sure.
"Signs
of any job strength were quickly dashed as 85,000 jobs
were cut in December," said
Andrew Fitzpatrick
, vice president of money management firm
Hinsdale Associates
. "It is becoming harder and harder to justify this
stock market rally when looking at how many people are
out of work."
United Parcel Service
has become a recent symbol that old assumptions could be
flawed. Last week, the company forecast strong profits,
but also announced it would eliminate 1,800 jobs.
"I
found that to be very ironic, and very confusing,"
Fitzpatrick said. "This has become a recurring
theme and leads to further discussion around this
so-called jobless recovery.
"The
layoffs are not good for
Main Street
, yet
Wall Street
applauds any corporate news that indicates higher
profits, lower costs and generally more productivity and
efficiency," Fitzpatrick noted. "That doesn't
bode well for employment."
David Rosenberg
, chief economist and strategist for money managers
Gluskin Sheff & Associates
, suggests it might not bode well for investors either.
"Stocks
are priced for perfection" — leaving them
vulnerable, he said. With joblessness high, companies
could have difficulty selling products and investors
could conclude they overpaid for stocks.
"It's
not just the magnitude of the job declines, but how
widespread they are that is disturbing," Rosenberg
said. "The segments of the employment pie that are
sensitive to the business cycle actually cratered
142,000 last month."
The
construction, durable goods manufacturing, retail and
wholesale, transportation, leisure and hospitality,
information services and real estate sectors all lost
thousands of jobs last month, while jobs were added in
health care and education.
Still,
many analysts remain focused on the thought that,
eventually, high productivity and profit growth will
bring people back to work. And productivity growth has
been high — about four times higher than usual levels,
Pandl said.
High
productivity means companies are producing a lot more
per worker than the norm — either by working their
employees harder or using technological efficiencies, or
both. The average workweek, meanwhile, hit a historic
low of 33 hours in October, meaning companies could
increase hours of existing workers before hiring new
ones, further dampening employment prospects for many
Americans.
"You
can't have productivity this high forever unless there
are tremendous technological improvements," said
Barclays Capital
economist
Michelle Meyer
, adding that there is no major technology boom now like
the Internet in the 1990s.
Although
that might eventually mean some selective hiring, Meyer
doesn't think that means relief to millions who lost
jobs in this recession because some types of positions
have been eliminated altogether. In addition, she said,
people out of jobs for long periods of time can find it
harder to land jobs because skills get stale.
Consequently,
she said, some people will give up on jobs and the
economy might adapt over time to higher unemployment,
lower pay and slower growth.
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