Page last updated at 12:48 GMT, Friday, 7 August 2009 13:48 UK

No swift recovery for US jobs market

By Zoe Kleinman
Business reporter, BBC News

dollars
The recovery will be very gradual

It is Barack Obama's 200th day in office, but he's unlikely to be celebrating.

The latest US unemployment figures are better than expected but still a depressing read, with 247,000 US citizens losing their jobs in July.

It means that a total of 9.4% of the population is now out of work.

Although this is a marked improvement on the figures for June, economists say unemployment is likely to reach an uncomfortable 10% this year.

There is one tiny ray of light on the horizon - analysts widely agree that technically the recession is likely to end in the latter half of 2009.

The bad news is that it is going to be a long time before many people notice.

Turning point

"Although the economy seems to be at a turning point, we're not at a turning point for the labour market," says Brian Bethune at IHS Global Insight. "That is still some way off."

A report by Capital Economics says the recession is technically likely to come to an end during the third quarter of the year, partly as a result of the US government's $787billion fiscal stimulus. It is during this same period that other experts predict unemployment may hit 10%.

"Unfortunately, even once GDP [gross domestic product] begins to grow, it will likely take still longer for employment to stop falling and begin to rise," says White House economics adviser Christine Romer.

It is not unusual for unemployment to lag behind recovery - the labour market does not automatically improve the moment the economy turns around.

Slow growth

Essentially the recovery might be a recovery in a purely technical sense, but if the economy is growing below the rate at which it's capable of growing, it isn't going to do a lot of good
John Higgins

But recovery following a global financial crisis tends to be extremely slow, meaning that it will be a long time before the economy is back to its full potential and industry is working at capacity.

Only then will employers have enough work available to take on extra staff.

The US economy is predicted to experience very weak growth of 1% in 2010, and 2% in 2011. In a healthy climate, a ballpark average growth figure is about 3%.

"It's a modestly positive rate of growth, but that doesn't mean that conditions are improving," says John Higgins, Senior Markets Economist at Capital Economics.

"Essentially the recovery might be a recovery in a purely technical sense, but if the economy is growing below the rate at which it's capable of growing, it isn't going to do a lot of good."

Scrappage success

There are a few encouraging signs. The US version of the car scrappage scheme - "cash for clunkers" - has resulted in more than 220,000 car sales, and has just been granted a $2bn extension.

It has had a positive impact on the manufacturing industry. Morgan Stanley economist Richard Berner says that vehicle production in July was 60% higher than it was in June, and he is confident that it will continue to rise.

Generally though, the outlook for employment in the near future does not look promising.

"The job cuts have been more severe and widespread than during past recessions," says Ed Yardeni, president of independent investment consultant Yardeni Research.

"Businesses seem to be betting that when their sales recover, they'll be able to increase output with greater productivity. If my analysis is correct, then the employment recovery will be lacklustre."



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