Source: Lansing State Journal
By Rex Nutting
January 11, 2010

Growth in 2010 to be steady, but won't be enough

WASHINGTON - The U.S. economy is limping - not sprinting - out of the Great Recession of 2008 and 2009.

While the economy is likely to grow at a steady but unspectacular 3 percent pace in 2010, the prospects for significant job growth are dim and the unemployment rate still could be in the 10 percent neighborhood at this time next year, economists say.

Growth of 3 percent would be far slower than is usual after a steep recession - for example, the economy grew nearly 10 percent in the year following the 1958 recession - but it would be slightly stronger than the 2.8 percent average of the past 20 years.

Above-trend growth "never felt so bad," wrote economists at JP Morgan Chase & Co. "Growth will not be boomy. And growth will not go far in returning the economy to healthy levels of activity."

Some new jobs

Still, it's expected that the economy will begin to create some jobs again in 2010, after two years of month-after-month declines and a loss of more than 8 million jobs.

According to the median forecast of economists surveyed by Blue Chip Economics, about 1.1 million nonfarm payroll jobs will be created next year. The consensus expects the unemployment rate to be 9.9 percent a year from now.

Three percent growth "won't generate enough job growth to do much more than keep unemployment from rising further," wrote Tim Duy, an economics professor at the University of Oregon.

Long road ahead

The adult population grows by about 2 million a year, which means the economy needs to create about 1.3 million jobs every year to satisfy all those who want to work. The economy needs to grow at a pretty fast clip to create those jobs, because productivity improvements mean that we can produce about 2 percent more each year with the same level of employment.

It could take years to bring the unemployment rate down to 5 percent or 6 percent.

Typically, after such a steep recession, job growth would snap back quickly as firms ramp up production to meet the desires that were repressed during the downturn.

This time, however, the lingering impact of the financial crisis will mean less consumption, less investment and less hiring than normal.

Economists at Goldman Sachs figure the unemployment rate won't peak until the middle of 2011 and will drop back to 10.5 percent by the end of 2011. That's at least two more years of remarkably high unemployment.

Chronic problem

Chronic unemployment is devastating to the nation's long-term potential. It erodes both morale and skills. Already, the U.S. economy is failing to provide work opportunities for young people, who may suffer a lifelong financial handicap from their slow start on their careers.

Economist David Levy of the Levy Institute figures unemployment will average 8 percent for the decade ahead. Investors, he said, are "dangerously unprepared for what lies ahead during the 2010s."

He sees high unemployment, weak investment, deflation, debt crises, protectionism and political unrest around the globe. Adds Levy: "There are more 100-year storms to come."