Profits up, jobs down ... what's in Pennsylvania's future?
THE FEDERAL Reserve Board is widely expected to downgrade its growth projections for the American economy - something the panel has already done in 2010 - when it meets today in Washington.
To which most Americans - but especially the whopping 6.6 million who have been unemployed for more than six months, by far the most since we started counting after World War II - would reply with this answer.
Yet, it's still not clear whether America's policy makers have truly come to grips with the gut-wrenching plight of the so-called "99ers" - at least 1.4 million workers who'd exhausted all their unemployment benefits before Congress just barely passed a 20-week extension - or the fact that some economists fear that the jobless rate could hover near the current 9.5 percent level for perhaps a couple of years.
It wasn't supposed to be this way. In January 2009, both Philadelphia and the nation had more optimism. The Eagles were one victory away from returning to the Super Bowl, and the $787 billion stimulus package backed by incoming President Obama was promised to keep unemployment from spiking above 8 percent.
Neither happened. The jobs crisis is vexing because by many conventional measures the economy has improved over the last 18 months.
So why can't America find a job? Here are some questions and answers.
Q. Here's the main thing I don't get: it seems as if America's businesses are turning around, but no one's hiring.
A. That's right. Last month, the New York Times reported that U.S. corporate profits had risen a steep 40 percent since the financial crisis in the fall of 2008, and by next year average corporate profit margins are expected to rise to a record 8.9 percent. That's a key reason that stocks on Wall Street have rebounded so sharply from their early 2009 lows.
But these profits have come on the backs of the American worker, who has watched salaries remain flat. Public companies are stockpiling their excess cash rather than hiring back workers or buying new equipment. Indeed, some companies plan to remain profitable through continued job reductions.
These firms basically aren't hiring because they don't have to. Their main obligation is to their shareholders, and more than at any time prior, firms have squeezed out productivity and learned how to do more without hiring workers back.
"Given the very impressive gains we have had in worker productivity over the recent years, companies can produce just as many goods and services as before with fewer workers," said Tom Fomby, professor of economics at Southern Methodist University.
Q. But what's the human impact?
A. It's devastating. Numerically, the number of chronic, long-term unemployed is something we haven't seen since the Great Depression. The percentage of the 14.6 million unemployed Americans who've been unable to find work for more than six months is a whopping 45 percent. Daniel Hamermesh, professor of economics at the University of Texas at Austin, noted that the comparable figure when unemployment spiked above 10 percent in the recession of 1981-82 was just 33 percent.
Q. What changed?
A. Some experts believe that the U.S. economy was more rooted in manufacturing during those past recessions and more prone to a speedier cycle of layoffs and rehirings.
But Hamermesh argued for several factors, especially geography. "Companies are very scared of hiring, and the people who lost their jobs this recession are heavily concentrated geographically in places like Michigan [where the auto industry was devastated] and the small-housing-boom states of Nevada and Arizona." He also argued that there's some truth to the controversial argument that extending benefits leads to more long-term unemployed, but said that's not a significant factor.
Q. Are there other unique factors behind persistent unemployment?
A. Yes. One is that in a traditional recession, jobs started coming back once companies reduced their large inventories. But studies have shown that unemployment is much more stubborn after a financial crisis like the crash of 1929 or 2008's roller-coaster ride on Wall Street. That is because banks tend to remain tight with credit for some time, and that prevents loans to the small businesses that drive job creation.
The other factor has been the housing crisis, which is why unemployment has been higher in those mid-2000s housing-boom states of the Sunbelt. The real-estate Web site Zillow recently reported that about 20 percent of all U.S. home mortgages are "under water" - meaning that the borrower owes more than the home is now worth. Depressed housing prices have caused these families to sharply curtail spending, feeding the joblessness cycle.
Q. How does Pennsylvania compare to these battered Sunbelt states?
A. Typically, unemployment in the Keystone State has tended to outpace the nation because of the Rustbelt economy here, but the current 9.2 percent rate is below the national average. You can partly thank the stable housing market that had few gimmicky mortgages, meaning that home prices in Pennsylvania neither soared in 2005 nor crashed in '08.
But unemployment in Philadelphia (11.9 percent) is well ahead of the national average.
Q. So do these trends mean that we're heading into a "double-dip recession"?
A. A new period of negative economic growth and further job losses would be devastating. Many experts say they are hopeful that the disturbing trends - including last month's weak figure of 71,000 new private-sector jobs, not enough to keep pace with the growth of the labor pool - are just a plateau.
Alan Greenspan, the former Fed chairman, said earlier this month that he thought the recovery was "in a pause" and that banks and large companies are doing well, even if the unemployed are not.
Q. If the private sector won't hire anyone, what to do?
A. The economic theory of John Maynard Keynes argued that only government spending can break through severe economic downturns. It was that approach that guided Franklin Roosevelt in his New Deal and Obama in his 2009 stimulus plan, which many experts argued was in fact too small to stop the slide in unemployment that took place.
But in 2010, concern over the national debt rules the political conversation, making more major government intervention unlikely. Robert Rubin, the former Treasury secretary under Bill Clinton, last week argued that only a deficit-reduction package would restore confidence in the economy, although it was unclear how that might lead to jobs.
Q. Meanwhile, what else can we expect?
A. The jobless crisis is already having unexpected side effects. Social Security is experiencing its first cash shortfall this year - because an expectedly large number of people took early retirement at age 62, many from among the long-term unemployed deciding they would never get a job again.