Jobs Are Back, But Still Hard to Come By

Pessimism about the U.S. economy has reigned for most of 2009. Pundits on both the left and right have held that the programs enacted to bring the financial system back from the brink wouldn't--and couldn't--work. They have been wrong. The Troubled Asset Relief Program (TARP) would be a classic example of throwing good money after bad. (Bank of America, recently a basket case, just paid back $45 billion in TARP funds--with interest.) The stimulus passed in February was way too small to halt the economic decline. (Actually, it has short-circuited the recession.) The most unexpected event--aside from the stock-market rally that began in March--was the economy's shift from shrinking at a 6.4 percent annual rate in the first quarter to expanding at a 2.8 percent rate in the third quarter. "This growth has been better and stronger than we expected, than anyone expected," says Treasury Secretary Timothy Geithner.

Skeptics are now focused on the next big economic problem we face: unemployment. True, the numbers have been dismal. We've lost 7.2 million jobs, and unemployment in November was 10 percent. For African-Americans, the rate was 15.6 percent, and more than one in four teens are out of work. Economists believe the unemployment rate will persist at 10 percent through 2010. After the previous recession ended in November 2001, companies slashed payrolls for 17 of the next 21 months.

But jobs are on the way, and sooner than you think. Not enough to make everybody happy, of course, or to reach anything approaching full employment. But the data suggest that the economy, now growing at a rate above its historical trend, may be creating more jobs than are being lost. Companies shed only 11,000 payroll jobs in November--the smallest drop since late 2007. For the past three months, the government's first estimate of job-loss figures has been high; when the November numbers are revised, there may be a job gain. Labor-market recoveries are always a lengthy four-step process. First, as businesses stabilize, they fire fewer people. First-time unemployment claims are still elevated, but the four-week moving average is 474,000, the lowest in more than a year. Second, when demand begins to pick up, businesses prod existing workers to work harder. Which is why we've just witnessed the fastest two-quarter productivity surge since 1961. Third, when growth persists, bosses give part-time workers more hours or bring on temporary workers. In November, the economy added 52,000 temporary jobs, the largest addition since 2004, and retail hiring for the Christmas season is up 37 percent this year.

The final step--adding full-time positions--is happening now. Services account for about 86 percent of jobs. And it's here, not in the shrunken housing and finance sectors, where the employment recovery is taking hold. The Bureau of Labor Statistics said that the service sector added 58,000 jobs in November, the second straight month of growth. Among the new service workers are the 240 employees of the Elysian, a 188-room luxury hotel that opened Dec. 9 on Chicago's Gold Coast.

So why hasn't this preponderance of evidence led to more optimism about jobs? Well, they're still very hard to come by. The Elysian fielded some 3,000 applications for those 240 positions. Nationwide, in July, there were more than six job seekers for every opening. And the duration of the slump--we've just endured the longest economic contraction since the Great Depression--has darkened the national mood. But several other factors are to blame. In the past few years, economic prognosticators have been spectacularly behind the curve. In 2007 forecasters told us housing prices wouldn't fall and the economy wouldn't lapse into recession. Oops! Since the unforeseen debacles of 2008, existential angst has led forecasters to err on the side of bearishness. Combine ennui with a tendency to extrapolate existing trend lines into the future, and gloom begets gloom. The result has been a systematic understatement of the strength of the recovery. In May forecasters surveyed by the Philadelphia Federal Reserve said the economy would grow at about a 1 percent clip in the second half of 2009. That's likely to be off by a factor of three. After being too optimistic at the top, business leaders are also frequently too pessimistic at the bottom. According to the Business Roundtable's survey of CEOs, only 19 percent expect their U.S. employment to increase in the next six months. But these guys believe the economy will grow by less than 2 percent in 2010.

This tendency has been amplified by another force: politics. For the right, it has become an article of faith that so long as Obama sits in the White House, the economy must remain weak. Having voted en masse against the stimulus package on the grounds that it can't work, the line from Republicans is that Obama is a socialist, job-killing, market-wrecking disaster. It follows, naturally, that his policies can spell only doom. On March 6, Michael Boskin, the Stanford professor and economic adviser to Bush the elder, wrote a Wall Street Journal op-ed titled "Obama's Radicalism Is Killing the Dow." Since then, the Dow has rallied 57 percent. The party of Reagan is, in effect, rooting for economic rain. For the left, the pessimism stems from two sources. First, the bailouts were conceived in sin, because they provided unjust rewards to highly paid idiots who nearly destroyed the economy. More broadly, Obama has been too concerned with catering to discredited economic forces: Wall Street banks and Republicans. To get three Republican Senate votes for the stimulus bill, backers reduced its size by about $300 billion. And that, argued Nobel laureate and columnist Paul Krugman, made it too small to be effective.

There's also a more abstract force weighing in favor of pessimism: a collective failure of imagination. Sure, the macroeconomic numbers seem to be setting the table for job creation. But where are all the jobs going to come from? The forces that drove job creation in the past--the housing boom, easy money, reckless lenders--are no longer with us. And it's hard to identify that one giant engine--the next Internet or housing boom--that will ignite growth.

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