Employment Losses Linger

By: Andrew Eder
The News Journal

Job cuts are expected to continue, even as economy shows recovery

August 24, 2009

The discussion on the U.S. economy has turned from recession to recovery, from red ink to green shoots.

But the economic indicator that matters to most people -- employment -- is stuck in reverse.

Since the recession began in December 2007, the U.S. has trimmed 6.7 million jobs, about 4.8 percent of the pre-recession total. Delaware has lost nearly 28,000 jobs since peaking in February 2008 -- about 6.3 percent.

Even as some analysts see signs of recovery in the broader economy, job growth is expected to lag behind economic output. In Delaware, economists think the turning point in the labor market is as much as a year away, with employment not returning to pre-recession levels for another three years.

Delaware's economic problems run deeper than the business cycle. The state faces the decline of its financial sector and related jobs, the loss of two auto assembly plants in close succession and a long-term decline in job growth and personal income.

"Things are going to change structurally in the state, and it's going to take a while to adjust to that," said Ed Ratledge, director of the University of Delaware Center for Applied Demography and Survey Research.

On a national level, optimism is growing that the economy is pulling out of its deep tailspin and poised for growth. In the Federal Reserve Bank of Philadelphia's quarterly survey this month of economic forecasters, the average prediction was gross domestic product growth of 2.4 percent this quarter, up from 0.4 percent in the last survey.

But even as the forecasters have grown more optimistic about the economy as a whole, their outlook for the labor market remains dim. The average forecast for U.S. unemployment now tops out at 9.9 percent, up from 9.8 percent in the last survey, and the economists predicted an average of 24,600 lost jobs each month next year.

The reason is that companies are typically hesitant to hire until they're confident that the recovery has staying power. So even as output picks up, unemployment may continue to rise, leading to a so-called jobless recovery.

In Delaware, job losses in the recession have sent employment levels below where they were 10 years ago. Mainstays of the state's economy such as finance, manufacturing, construction and business services have seen broad job cuts, while only health care and education have had employment growth.

The unemployment rate in Delaware ticked down slightly to 8.2 percent in July, but the state still lost jobs. Moody's Economy.com predicts that unemployment in the state will top out at nearly 9 percent in the middle of next year before drifting back down to 5 percent through 2014.

John Stapleford, a senior economist for Economy.com, said Delaware's aging population will help drive above-average job growth in health care and leisure and hospitality in coming years. Local government is the only other sector projected to have above-average growth, Stapleford said.

Employment in manufacturing should hit a turning point next year, but will return to, at best, 85 percent of what it was before the recession, Stapleford said. Hiring in construction isn't expected to turn around until mid-2011, and the industry may return to only 75 percent of its peak, he said.

"Overall, there's not a lot of areas that you can see accelerating above Delaware's sort of baseline economy," Stapleford said.

The Delaware Department of Labor offers similar short-term predictions. Labor market economist George Sharpley said he doesn't expect any sustained job growth until next year, with employment reaching pre-recession levels in 2012.

A recent analysis by Sharpley projects that total employment in Delaware will fall 3 percent between 2008 and 2010. Of the relatively few occupations set to gain positions in that period, most are in the fields of health care, personal care, education and social services.

Ratledge said a number of factors -- including still-reluctant consumers, less access to credit and uncertainty on tax policy -- make it difficult to predict the timing and strength of an economic recovery. Once a recovery starts to take hold in Delaware, he said, hiring should pick up in retail, wholesale and business services.

"What I don't know is whether you're going to recover those jobs from the financial sector anytime soon," Ratledge said. "And those were very good-paying jobs."

Stapleford said Delaware, in recent decades, has seen employment growth rates decline and per-capita income fall compared with the national average. Meanwhile, government transfer payments are making up a larger proportion of personal income in Delaware.

The result, Stapleford said, is that after years of high growth and strong earnings, Delaware's economy is becoming merely average.

"It's a change and an adjustment," he said.

Meanwhile, thousands of Delawareans are collecting unemployment benefits through emergency extensions enacted by Congress. Regular state benefits last for 26 weeks, but the federal extensions have allowed laid-off workers in Delaware and some other states to collect benefits for as many as 79 weeks.

Tom MacPherson, director of the labor department's Division of Unemployment Insurance, said some Delawareans could begin to exhaust their benefits in mid-November, although Congress is considering another extension.

For the week ending Aug. 14, nearly 16,000 workers claimed regular state unemployment benefits, MacPherson said.

In addition, nearly 9,500 in Delaware claimed benefits under one of the federal extension programs.

MacPherson said that in a stronger economy, only about 6,000 to 8,000 workers would receive unemployment benefits.

"Our workload has close to quadrupled," MacPherson said.