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Economists say high unemployment likely to persist through recovery

WASHINGTON — Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years.

That could add up to a "new normal" of higher joblessness and lower standards of living for many Americans, some economists say.

The words "it's different this time" are always suspect. But economists and policymakers say the job-creating dynamics of previous recoveries can't be counted on now. As a result, many of the 7.2 million jobs the economy has shed since the recession began in December 2007 may never come back.

Here's why:

• The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these industries will be engines of growth any time soon.

• The job market is caught in a vicious circle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.

• Many small and mid-sized businesses are still struggling to obtain bank loans, impeding expansion plans and constraining overall economic growth.

• Higher-income households are spending less because of big losses on their homes, retirement plans and other investments. Lower-income households are cutting back because they can't borrow like they once did.

"This Great Recession is an inflection point for the economy in many respects. I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future," said Mark Zandi, chief economist and co-founder of Moody's Economy.com.

Even before the recession, many jobs had vanished or had been shipped overseas amid a general decline of U.S. manufacturing. The most severe downturn since the Great Depression has accelerated the process.

Many economists believe the recession reversed course in the recently ended third quarter and they predict modest growth in the nation's gross domestic product over the next few years. Yet the unemployment rate is currently at a 26-year high of 9.8 percent — and likely to top 10 percent soon and stay there awhile.

At best, many economists see an economic recovery without a return to moderate unemployment. At worst, they suggest the fragile recovery could lose steam and drag the economy back under for a double-dip recession.

"It's a new normal that U.S. growth is going to be anemic on average for years. Right now, the prospect is bleak for anything other than a particularly high unemployment rate and a weak jobs-creating machine," said Allen Sinai, president of Decision Economics Inc. He says he doubts that unemployment will dip below 7 percent any time soon. Many economists consider a jobless rate of 4 to 5 percent as reflecting a "full employment" economy, one in which nearly everyone who wants a job has one.

Will unemployment ever get back to such levels?

"I wouldn't say never. But I do think it's going to be a long time," said Bruce Bartlett, a former Treasury Department economist and the author of the book The New American Economy: The Failure of Reaganomics and a New Way Forward.

Economists say high unemployment likely to persist through recovery 10/19/09 [Last modified: Monday, October 19, 2009 10:38pm]
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