U.S. loses equivalent of every job created in decade

Alia McMullen
Financial Post
July 02, 2009

An unemployed man who lives in a camper van on Venice Beach in Los Angeles on June 19, 2009. The U.S. unemployment rate has risen to 9.5% after more than 400,000 jobs were lost during the month

The U.S. economy has lost the equivalent of every job created in the past nine years.

All job growth since the final year of the dot-com bubble, its recovery from the bust, and the ensuing six years of consumer-driven boom is now gone, leading some economists to fear an outright decline in wages will be next. Others believe the United States is on track for a painful "jobless recovery."

"This is the only recession since the Great Depression to wipe out all jobs growth from the previous business cycle, a testament both to the enormity of the current crisis and to the extreme weakness of jobs growth over the business cycle from 2000 to 2007," said Heidi Shierholz, an economist at Washington-based think tank The Economic Policy Institute. "It is apparent that, despite the substantial positive impact of the February recovery package, the economy's dramatic deterioration from November to March was even greater than anticipated."

Non-farm employment fell for the 18th consecutive month in June, dropping by a worse-than-expected 467,000, U.S. Bureau of Labor Statistics figures showed Thursday. The decline marked the longest run of job destruction in the post World War II period.

Since the recession began in December 2007, the jobs market has shrunk by 6.5 million positions, pushing the unemployment rate up 4.6 percentage points to 9.5% -- the highest rate since 1981. Nine million part-time workers are in want of full-time jobs, and a record 29% of unemployed have been jobless for more than six months.

Derek Holt, vice-president economics at Scotia Capital said the U.S. unemployment rate would likely eclipse the 10.8% record set during the early 1980s recession.

"This has become, without question, the worst ever post-war pace of job market downsizing in the U.S. economy," Mr. Holt said.

He said unemployment would weigh on an economic recovery by restraining consumer spending. It would also cause further concerns about credit quality and retail bank revenue growth.

A homeless in Los Angels

The employment market's problems do not end at job losses. Earnings are under pressure. Average hourly earnings rose an annualized 0.7% in the past three months -- the smallest gain since records began in 1964. The annual change in hourly earnings slipped to a rise of 2.7% from 3% the previous month.

"Wages will soon be falling outright, a classic deflation signal," said Ian Shepherdson, the chief U.S. economist at High Frequency Economics.

Compounding problems, average hours worked fell further in June to be down 0.8% to a cyclical low of 33 hours a week. The average workweek has shrunk 8.2% since the start of the recession, placing added pressure on household cash flows. It also means employers will be slow to hire because there is ample room to increase work hours.

Sal Guatieri, an economist at BMO Capital Markets, said the conditions increasingly pointed to what is known as a "jobless recovery," where economic growth returns without a corresponding rise in employment.

He said the decline in work hours could weigh on gross domestic product in the second and third quarters, and could cause GDP to come in worse than predicted. BMO has forecast the U.S. economy to contract by an annualized 2.9% in the second quarter and remain flat in the third quarter.

The dispirited outlook for the United States will have a direct impact on Canadian jobs by keeping business conditions weak. Dale Orr of Dale Orr Economic Insight said Canada's unemployment rate would likely peak near 10% in early 2010, up from 8.4% now. "I do not expect solid reductions in the unemployment rate until 2012," he said.

There was one positive in the U.S. employment report: the pace of job losses in June remained lower than the massive declines of winter, when a record 741,000 jobs were lost in January alone. Even so, it was the first increase in the number of job losses in five months. A large part of the decline in June was due to a 49,000 drop in government employment, mostly due to layoffs of temporary workers hired to prepare the 2010 Census.

But Wednesday's rise in the purchasing managers index, which reflected expansion for a second consecutive month, suggested better employment conditions ahead.

"Historically, firms will wait for production to expand for a few months before they start adding to payrolls," said Stéfane Marion, the chief economist at National Bank Financial. "This development suggests a much better tone to labour markets by this fall."