When down is up: Jobs report sparks hope recession's over

McClatchy NewspapersAugust 7, 2009 

WASHINGTON — A better-than-expected government jobs report Friday strengthened the growing consensus that the worst economic downturn in generations is nearing an end, and may even have ended already.

Economists warned, however, that there’s a long way to go before job growth rebounds along with the slowly expanding economy.

Employers shed 247,000 jobs in July, the Labor Department said Friday, highlighting the best monthly performance since last August. In a separate measure, the agency reported that the nation’s unemployment rate fell to 9.4 percent from 9.5 percent, the first drop since April 2008.

In another bright sign, Labor statisticians revised earlier reports to show that job losses in the previous two months weren't as bad as initially had been estimated. Losses in May and June were revised to 303,000 and 443,000, respectively, from 322,000 and 467,000.

Forecasters had expected about 320,000 lost jobs in July and an uptick in the unemployment rate. After last week’s report of a smaller-than-expected economic contraction at a 1 percent annual rate from April through June, Friday’s numbers raised hopes that the recession is ending.

“It’s Over,” said the title of a research report Friday from Barclays Capital Research, a division of the large British investment bank. It concluded that “June is likely to have been the last month of the U.S. recession.”

The forecasting group RDQ Economics in New York agreed. “The case that the recession ended in June continues to grow with this report,” it said in a note to investors.

Other economists voiced more shaded degrees of enthusiasm.

“The economy is still shedding jobs, but the pace of decline is slowing, consistent with the view that output has hit bottom and growth is now resuming,” Nigel Gault, the chief U.S. economist for forecaster IHS Global Insight, wrote in a research note.

Mark Zandi, the chief economist for Moody’s Economy.com, added that “the job market remains very bad, but the trend lines are good. These trend lines include smaller monthly job losses, upward revisions to previous job losses and the increase in hours worked per week.”

Government stimulus and Federal Reserve policies helped to end the recession and “the downturn will be called officially over in the third quarter,” Zandi said.

President Barack Obama voiced cautious optimism: “Today we’re pointed in the right direction. We’re losing jobs at less than half the rate we were when I took office. We pulled the financial system back from the brink,” he said in the White House Rose Garden.

Stocks, whose price trends often anticipate the economy months in advance, have rallied since March, adding to the feeling that the worst is over.

Among other recent positive economic signs: New home sales are rising sharply. The almost three-year decline in housing prices has leveled off in many markets. Vehicle sales are booming, thanks largely to the federal “cash-for-clunkers” subsidy program, which Congress renewed this week. Businesses have cut inventories to the bone across the economy, requiring them to restock — and producers to crank up production.

On the other hand, a downturn in commercial construction will continue to drag against recovery.

“Many nonresidential construction activities tend to lag behind broader economic cycles, including commercial/office construction,” cautioned Anirban Basu, the chief economist for the Associated Builders and Contractors, a trade group for builders. “However, the impacts of the stimulus package passed in February should become significantly clearer during the next six to 12 months, and this will help nonresidential construction employment stabilize during that period.”

Friday’s job numbers help support the Obama administration’s claim that the $787 billion fiscal stimulus effort is helping the economy recover.

“The pace of job losses over the last three months, 314,000, are less than half that of the prior three months, over 600,000, for only one reason: the stimulus package’s impact on personal incomes and state and local spending,” said Lawrence Mishel, the president of the Economic Policy Institute, a liberal policy-research group. “Obviously, we are not out of the woods yet and must confront continued job losses and a sluggish recovery.”

Despite July’s dip in the unemployment rate, analysts said it still was likely to climb later this year.

“The unemployment rate fell, but it is hard to believe that it has peaked already. Unemployment fell this month because the labor force fell faster than employment. Some prospective workers have just given up looking,” said Gault of IHS Global Insight. “We will need to see sustained employment gains before concluding that unemployment has peaked, and that probably won't be until the first half of 2010, with unemployment above 10 percent. But today's report brought the light at the end of the tunnel a bit closer.”

Grim signs of recession still abound, however, ranging from depressed consumer confidence to poor retail sales and a dip in a closely watched manufacturing index after months of improvement.

Friday's Bureau of Labor Statistics report also offered a sober reminder that even if things are getting better, they’re still bad. The average length of unemployment is now 25.1 weeks, the highest level in the 61 years these records have been kept.

“For a self-sustaining expansion to begin … businesses have to go from curtailing their layoffs to hiring. We are probably a year away from that, and it may require more help from policymakers,” Zandi said.

The number of Americans who've been unemployed for six months or more rose to almost 5 million in July, a record. They're one-third of all the jobless.

“There are substantial numbers of people who have exhausted their unemployment benefits,” said Diana Furchtgott-Roth, a senior fellow at the Hudson Institute, a conservative policy-research center. JULY UNEMPLOYMENT BY SECTOR:

_ Construction, down 76,000. _ Manufacturing, down 52,000. _ Retail, down 44,000. _ Professional and business services, down 38,000. _ Transportation and warehousing, down 22,000. _ Financial services, down 13,000. _ Health care, up 20,000. _ Government, up 7,000.

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