If the US recession is “likely over” as many Americans, led by Fed chairman Ben Bernanke, seems to think, where are the jobs going to come from to power growth in sales and earnings?
Bernanke doesn’t seem to see any chance of US employment growing in the next year, and overnight the central message from the Organisation for Economic Co-Operation and Development was similar.
The message was: things are looking up, but employment is going to get a lot worse with the OECD forecasting another 10 million jobs will go in its member countries in the next year, on top of the 15 million who have already been made redundant.
That could make the total of people out of work in the 30 major developed economies 57 million by the end of next year. That’s a demand dampener, if ever there was one.
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According to this report from Reuters, Nobel Economics Prize-winner Paul Krugman believes US unemployment won’t peak until 2011:
“Unemployment in the United States will peak only in early 2011 because of a slow and painful recovery from the global economic crisis.”
He said the global economy seems to be stabilising at a level that is “unacceptably poor” and added it is possible that the recession will be a double-dip one.
“(US) unemployment will peak in early 2011 … certainly staying very high and possibly rising all next year,” Krugman told a business meeting in Slovenia, adding his forecast was based on data from previous US economic crises.
The OECD said 15 million jobs were lost between end-2007 and July this year and a further 10 million more could go by the end of next year despite signs the economic has stopped and the outlook is picking up.
“A major risk is that much of this large hike in unemployment becomes structural in nature,” the report said.
“The world economy is indeed recovering. We’ve thrown trillions and trillions and trillions at it and, of course, we’re seeing results,” OECD secretary general Angel Gurria said.
“(But) employment is the bottom line of the current crisis. We cannot claim victory because we see economic indicators going up. We should not assume that (renewed GDP) growth will take care of this,” he told a news conference.
The OECD-wide unemployment rate has already hit the highest on records going back to World War Two, surging to 8.3% by June 2009 from 5.6% at the end of 2007, the annual employment report from the OECD said. The latest aggregate jobless rate across the OECD was 8.5% in July of this year.
Spain, Ireland and the US were worst hit, with unemployment rates rising by 9.7 percentage points, 7.8 percentage points and 4.5 percentage points respectively between the start of 2007 and mid-2009, it said.
“The labor market outlook would be even worse if governments has not pursued expansionary monetary and fiscal policy,” the OECD said.
It estimated that government spending on anti-recession projects will raise total employment next year by about 0.8% — 1.4% more than would otherwise have happened.
All this was ignored by the markets, which preferred to focus on a 0.8% rise in industrial production last month in the US, the second monthly increase in a row. Much of that was accounted for by the cash for clunkers car scrappage scheme, which won’t last as Chrysler’s new management said overnight that it has had a terrible September with sales down 19% already. General Motors managers confirmed that the month was been weak compared to the strong August.
Former Fed chairman and adviser to President Obama, Paul Volcker, had some realistic comments today as well.
“There’s a long way to go before the economy returns to pre-recession levels. It will be a long slog — a matter of years — with the risk of some relapses along the way,” Volcker said at a financial conference in Beverly Hills, California.
While Volcker said he sees signs that the economy is in the early stages of recovery, he also warned that “it is way too soon to resume business as usual”.
“We have a long way to go to get back the point of fully utilising our economic resources and restoring something approximating full employment,” Volcker said.
The markets will ignore this realism, and the OECD forecast for as long as there’s cheap money on offer from central banks and governments eager to postpone the day of reckoning.