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US recovery cold comfort for unemployed

The US recession ended in Nov '01, but unemployment is rising raising fears of a "jobless recovery".

business Updated: Oct 24, 2006 18:20 IST

If you believe the experts, the US economy is starting to regain momentum. But ask Murray Kieffer, laid off in May 2001 from his sales manager job in Minneapolis, and you get a very different answer.

"I certainly haven't seen any major change," said Kieffer, a 47-year-old father of two who spends seven hours a day job-hunting.

Last week, the arbiter of economic cycles made it official -- the recession ended nearly two years ago, in November 2001.

But unemployment is rising, not falling, and policy-makers have begun talking about the same "jobless recovery" phenomenon seen following the 1990-91 recession.

Economists know all too well employment does not immediately improve when an economy emerges from recession. Even if growth surges and business investment kicks in tomorrow, the ranks of the unemployed may not thin for months.

When the previous recession ended in March 2001, the jobless rate was 6.8 per cent. Rather than falling as the recovery took hold, unemployment rose steadily over the next year, peaking at 7.8 per cent in June 1992. Unemployment did not fall back below 6.8 per cent again until August 1993 -- more than two years after the recession ended.

Federal Reserve Governor Ben Bernanke said this week he expects the unemployment rate will stay stubbornly high around the current level of 6.4 per cent through the end of 2003, declining only gradually to six per cent in 2004.

Bill Dudley, chief economist at Goldman Sachs, agreed. "I wouldn't expect to see the unemployment rate really falling until probably the end of the year," he said.

"What you'll need to see first is an increase in demand that convinces businesses the recovery is really here, and then that translates into them changing their behavior and increasing their hiring," Dudley said.


Unemployed sales manager Kieffer has seen glimmers of hope at the end of the tunnel. Six months after being laid off, he was hired as vice-president of sales and marketing by a small start-up company. But venture financing fell through, and he was unemployed again eight months later.

Since then, he has had just a half-dozen job interviews -- but is skeptical the small signs of improvement he sees in the labor market herald a genuine turnaround.

"Maybe I'm seeing a few more job postings ... it may be opening up maybe just a little bit," Kieffer said. "Of course, I was hearing that six months ago ... and things just dried up again."

But unemployment is a stubbornly laggard indicator, held back by cautious companies afraid of leaping too quickly into a false recovery. What's more, the very productivity gains they made in the late 1990s mean employers can meet demands without bothering to hire more workers.

As a result -- and despite the recovery -- unemployment has climbed to a nine-year high and tens of thousands of Americans are in their second or third year of unemployment.

Philip Welte, 41, lost his job a year ago when his US employer closed down the Mexican plant Welte managed, reflecting the egalitarian effects of a recession that's hit higher-paid middle managers harder than past pullbacks.

He, his wife and two small sons returned to South Carolina, and now they struggle to make do on food stamps and his unemployment benefits -- which run out in a month.

"I try to get up every morning saying 'I'm going to hit it today. Something good is going to happen today.' It is too easy to get swallowed down the hole, otherwise," Welte said.


Welte's heard the talk about the improving economy and has seen signs of it himself. In the last three months, he says, more people seem to be getting jobs, his applications are generating more interest, more openings are coming up.

But some reluctance to commit remains.

"It's funny, they're all of a sudden interviewing, but they are not making a decision. It's like they're dipping their toe in the water, but they don't want to jump in," Welte said.

In Minnesota, Kieffer has seen the same thing. Last week, a company cold-called him to interview for a new position. By Friday, the job was on hold and the interview was canceled.

"That's in the course of one week -- they came looking for me, thought I was a good fit for the position, and then they put the position on hold," he said.

Still, in official circles, optimism about the economy abounds.

"I think that we're seeing real good signs that this economy is beginning to take off," Treasury Secretary John Snow said in a television interview on Tuesday.

Even wary Federal Reserve chairman Alan Greenspan has expressed guarded hope, noting last week that "statistic by statistic tends to be coming in somewhat better than we expect and that's usually a sign that things are changing."

On Thursday, the Labor Department said new jobless claims dropped to their lowest level since February, below the key 400,000 level economists view as a sign of a weak economy.

"I think this puts a stake in the heart of those that claim recession is still with us," said John Lonski, chief economist at Moody's Investors Service in New York.

In South Carolina, the perspective is a lot more personal.

"Like I told my father-in-law: I don't care if the unemployment is one guy in the whole country. If that one guy is me, then we're in an economic crisis," Welte said.

First Published: Jul 26, 2003 16:19 IST