Americans Feel 15.6% Unemployment as Underemployment Surges

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Americans Feel 15.6% Unemployment as Underemployment Surges

April 6 (Bloomberg) -- Joseph Ramelo gave up searching for work in January to return to school, two months after he was laid off as a San Francisco election clerk. Antonio Poe is struggling to get by doing part-time landscaping in Greensboro, North Carolina, after losing his job as an electrician.

While such workers are feeling real pain from the recession that began in December 2007, they’re not represented in the 8.5 percent unemployment rate the Labor Department reported last week. They are part of a broader group that includes those who want a job but have stopped looking for work and those who want full-time positions but have to settle for part-time employment.

A measure of underemployment that counts those people has almost doubled over the past two years, to 15.6 percent, providing a more complete gauge of the labor market’s deterioration. Along with an historic drop in the percentage of the population who are working, and record numbers of long-term unemployed, the figures point to a permanent shift in employment patterns, said former U.S. Labor Secretary Robert Reich.

“We’re seeing many more people who are losing their connectedness to the labor force,” said Reich, who served in President Bill Clinton’s Cabinet and is now an economist at the University of California at Berkeley. “There is a profound weakening of ties to the labor market among a large portion of our working-age population.”

Job Losses

U.S. employers cut 663,000 jobs in March, bringing losses since the slump began in December 2007 to about 5.1 million, the worst in the postwar era, according to the Labor Department. Unemployment exceeds 10 percent in seven states. Michigan’s jobless rate is 12 percent, South Carolina’s is 11 percent and California’s is 10.5 percent.

Job losses in the current recession are more enduring than in previous ones, according to an April 3 research report by Credit Suisse.

“Permanent job losses are accounting for a much larger share of total job losses than any cycle in recent memory,” with almost half of unemployed workers “job losers” as opposed to temporary layoffs, according to the report.

The number of Americans who want full-time jobs but are working part time has increased 83 percent in a year to 9 million, according to Labor Department data.

Ken Hueser may become one of them. The Minneapolis architect lost his $60,000-a-year position in February and is applying for part-time work at garden centers for $8.50 an hour.

Sooner or Later

“The economy will come back some day, but the unknown is whether it’s sooner or later,” said Hueser.

In the meantime, said Ramelo in San Francisco, “even if I don’t have a job, at least I’ll have my degree.” He returns to his City Hall job temporarily later this month. “At this point, I’m thinking any income will do,” he said.

The increase in temporary workers is the result of a severe recession that coincides with a large drop in household wealth and a lack of access to credit, leaving laid-off workers without the cushion they might have had in a milder downturn, said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “So people are doing whatever it takes to get some income for their households,” said Feroli.

Lisa Smith, a Trenton, New Jersey, childcare worker who lost her job last September, said she is now willing to take whatever work she can get.

“I would like to work 40 hours a week, but if someone offered me 30 or 35, I’d be glad too,” she said.

More Competition

She and workers like her face greater competition, even for temporary jobs, because more people are out of work for longer periods. There are currently about four unemployed workers for every job opening, according to the Economic Policy Institute in Washington.

The long-term unemployed, those who have been out of a job for more than six months, constitute 24.2 percent of the unemployed, the largest share during a recession since the Labor Department began recording data in 1948.

“This recession is causing extreme desperation and frustration for a very wide swath of workers, even people who thought they were flexible and could find work again easily,” said Andrew Stettner, deputy director at the National Employment Law Project, a New York group that advocates for workers’ rights.

In addition, the downturn is undoing years of gains to overall employment. Beginning in the mid-1970s, the percentage of working-age adults who have jobs began to rise steadily as more women joined the workforce, from about 56 percent in 1975 to 63.4 percent in December 2006. It has since dropped 3.5 percentage points, the steepest decline in any recession since the Great Depression.

That drop has implications for the economy’s potential growth rate, because fewer workers, without a compensating increase in productivity, means less output.

“We’ve taken a huge step back here,” said James Glassman, senior economist at JPMorgan & Co. He said elevated levels of unemployment and underemployment are costing the economy about $1 trillion in gross domestic product a year.

“We’ve lost several decades of progress that was going on in terms of the people number of people coming into the workforce,” said Glassman.

To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net
Last Updated: April 6, 2009 00:01 EDT





12% unemployed in Michigan statewide, 20% unemployed in the Metro Detroit area (which includes ALL of South East Michigan)

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Bernanke ‘Green Shoots’ May Signal False Spring Amid Job Losses

April 6 (Bloomberg) -- It will be months before it’s clear whether what Federal Reserve Chairman Ben S. Bernanke calls the U.S. economy’s “green shoots” represent the early onset of recovery, or a false spring.

The Labor Department’s April 3 report that the economy shed an additional 663,000 jobs last month, while the unemployment rate rose to 8.5 percent, will be followed by months more of bad-news headlines, economists say. The recession, now in its 17th month, has already cost 5.1 million Americans their jobs, the worst drop in the postwar era; unemployment may hit 9.4 percent this year, according to the median estimate in a Bloomberg News survey, and may top out above 10 percent in 2010.

The risk is that the jobs picture turns even more bleak than forecast or the drumbeat of bad news still to come causes consumers, whose spending has firmed up in recent months, to hunker down again.

“If something happens to spook consumers and they crawl back into their tortoise shells, that would be terrible news,” says Alan Blinder, former Fed vice chairman and now an economics professor at Princeton University.

Consumer spending, which accounts for more than 70 percent of the economy, rose 0.2 percent in February after climbing 1 percent in January, breaking a six-month string of declines.

“Whether the little wisps of improvement in spending are sustained needs watching,” says Stephen Stanley, chief economist at RBS Securities Inc. in Greenwich, Connecticut.

Interest Rates

Declining interest rates on mortgages and business loans led Bernanke, 55, to tell CBS Corp.’s “60 Minutes” on March 15 that he sees “green shoots” in some financial markets, and that the pace of economic decline “will begin to moderate.”

Fueled by optimism that the economy may finally be stabilizing, the Standard & Poor’s 500 Index last month gained 8.5 percent, the most in seven years. Still, “I would be careful about chasing this rally,” Jason Trennert, chief investment strategist at Strategas Research Partners in New York, said in a March 27 interview.

With the Obama administration borrowing to finance record budget deficits, U.S. debt sales will almost triple this year to a record $2.5 trillion, according to estimates from Goldman Sachs Group Inc.

The borrowings may send 10-year yields as high as 6 percent by the end of 2010 from 2.9 percent on April 4, Trennert says, adding that it’s “hard to get optimistic” about stock prices “if you’re in a situation where it’s reasonable to expect long- term interest rates to be higher.”

Stock-Price Plunge

Another plunge in stock prices is just one of the things economists say might derail any recovery. Others include the disorderly collapse of General Motors Corp., Chrysler LLC or a major financial firm; or the failure of the Obama administration’s bank-rescue plan.

A one-month jump in the jobless rate of more than 0.6 percentage point would be a severe blow to confidence, says Alan Blinder, former Fed vice chairman and now an economics professor at Princeton University. So would monthly job losses that continue to top 600,000 into the second half of the year, says Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania.

Payrolls have been shrinking by more than that every month since December. Losses need to come down below 500,000 in the next few months and drop close to 100,000 by year-end to confirm that the worst of the recession is over, Zandi says.

“If we continue to lose 600,000-plus jobs a month, that will burn out those green shoots pretty quickly,” he says. “If you lose jobs like that, it continues to undermine consumer spending and confidence.”

‘Head Fake’

Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG in New York, says he wouldn’t be surprised to see a first- quarter gain in consumer spending that “may turn out to be a head fake, which isn’t uncommon in a recession.” Spending might turn lower in the current quarter before stabilizing in the second half, he says.

If consumers retrench, “you’d be looking at a very negative scenario again,” says David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York.

Hensley is watching the savings rate, which reached 4.4 percent of disposable income in January after hovering below 1 percent for most of the past four years. Any further surge in savings would indicate that Americans are still avoiding big purchases.

‘Not Enough Income’

“There’s just not enough income in the system to support both an increase in the savings rate and stable consumer spending,” Hensley says.

First-quarter earnings reports from Citigroup Inc. on April 17 and Bank of America Corp. on April 20 will be among early signposts. Those will be followed at the end of the month by the Treasury Department’s “stress tests” of the two firms and other major banks to identify which ones need additional capital.

Citigroup and Bank of America both reported a strong start to the year, and a rally in their shares last week helped send stock indexes to their highest levels since early February. Disappointing quarterly results might quickly reverse those gains.

What’s more, Stanley says, stress tests showing more than a few banks are too frail to continue would trigger wider credit spreads and tighter lending conditions. The so-called TED spread, the gap between what banks and the Treasury pay to borrow for three months, ended last week at 95.5 basis points, close to the low for 2009 of 90 basis points, reached Feb. 10.

Triple the Level

While that’s down from the peak of 463 basis points on Oct. 10, 2008, it’s still triple the level of two years ago, before the recession began.

The Obama administration is also looking for a solution in the next two months to the auto industry’s woes, perhaps through a merger for Chrysler and a quick and orderly bankruptcy filing for General Motors.

The administration has given Chrysler until May 1 to complete a combination with Italy’s Fiat SpA, and GM has until the end of May to “fundamentally restructure.” If they fail to meet the deadlines and one or the other collapses in a disorderly heap, the ripple effects would be felt throughout U.S. manufacturing, causing the loss of another million jobs and pushing unemployment to 11 percent, LaVorgna says.

The outlook for a second-half pickup also depends on the Treasury successfully executing its plan to help banks remove as much as $1 trillion worth of devalued loans and securities from their books so they can start lending again and resuscitate the economy.

“Basically, it’s a confidence story,” says LaVorgna. “The risk is that banks could deteriorate further and prolong the pain.”

To contact the reporters on this story: Shobhana Chandra in Washington schandra1@bloomberg.netMatthew Benjamin in Washington at Mbenjamin2@bloomberg.net
Last Updated: April 6, 2009 00:21 EDT