Fed Official Sees High Unemployment For Years

The November 11, 2009 article "Fed Official Sees High Unemployment For Years reports:

Unemployment likely will remain high for the next several years because the economic recovery won't be strong enough to spur robust hiring, a Federal Reserve official warns. Separate reports say job openings are at rock-bottom levels, a trend that could keep the unemployment rate high even as layoffs slow.

The cautionary note struck Tuesday by the presidents of regional Fed banks were the first public remarks by Fed officials since the government reported last week that the nation's jobless rate bolted to 10.2 percent in October. It marked only the second time in the post-World War II period that the rate surpassed 10 percent.

In separate speeches, Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising unemployment could crimp consumers, restraining the recovery. Consumer spending accounts for about 70 percent of economic activity.

'A Slow Rebound'

"With such a slow rebound, unemployment could well stay high for several years to come," Yellen said. "In other words, our recovery is likely to feel like something well short of good times."

Lockhart said "very slow net job gains" may occur "sometime next year."Yellen envisions the shape of the recovery kind of like an "L" with a gradual upward tilt of the base.

Troubles in the commercial real estate market and the plight of small businesses also will weigh on the recovery, they said.

Meanwhile, government and private surveys released Tuesday said job openings remain scarce. Small businesses in particular are reluctant to add workers as they struggle to obtain credit. Many are pushing their current employees to produce more. Economists say small businesses account for about 60 percent of new jobs.

Job Openings Remain Low

The Labor Department's Job Openings and Labor Turnover survey said employers advertised about 2.5 million job openings at the end of September, up slightly from the previous month. That's down from a peak of 4.8 million openings in June 2007.

Layoffs are slowing a bit. Employers cut a net total of 190,000 jobs in October, the government said last week, much lower than the average of about 700,000 a month in the first quarter of this year. But until companies are willing to hire, the unemployment rate is likely to keep rising from its current level of 10.2 percent, the highest in 26 years.

Still, there are some pockets of hiring as demand for information technology and sales professionals grows, according to government reports and job search Web sites. And there are signs that companies are adding more human resources personnel, which could signal more hiring down the road.

"We've seen a real spike in the hiring of contract recruiters," said Phil Haynes, managing director of AllianceQ, an employers' association that includes companies such as Starbucks Corp., Bank of America Corp. and Intuit Inc. "The recruiters come before the jobs."

But overall, it's a tough time to be out of work. There are about 6.1 unemployed workers, on average, competing for each job opening, a Labor Department report shows. That's down slightly from 6.2 last month, the most since the department began tracking job openings nine years ago.

It's a sharp increase from only 1.7 workers per opening when the recession began in December 2007.

Small Businesses Reluctant To Hire

The National Federation of Independent Business said Tuesday that small companies remain skeptical about the recovery. Its Index of Small Business Optimism rose 0.3 points to 89.1 last month, the third straight increase but still below the 94.6 reading in December 2007.

Small businesses are reluctant to hire or invest in expansion, the monthly survey found. Sixteen percent of the survey respondents plan to cut jobs over the next three months, while only 9 percent plan to hire.

"Overall, the small business job machine is still in reverse," said William Dunkelberg, NFIB's chief economist.