The moribound U.S. job market still poses severe challenges and will lag recovery in financial markets and stabilizing production, a senior U.S. Treasury official said on Monday.
Alan Krueger, assistant Treasury secretary for economic policy, said job losses in the current recession have been more severe than expected as employers hold off on hiring and federal stimulus spending takes months to work its way through the economy.
Although there is always a risk of a false dawn, so far the latest phase of the recession has followed the typical pattern seen around the end of recessions, Krueger told a conference of actuaries in Washington.
The financial markets have recovered sooner than production, and production is stabilizing faster than the job market. If the typical pattern continues, a major challenge going forward will be hiring, as markets continue to stabilize but employers delay hiring in the face of lingering uncertainty, Krueger said.
Krueger said more jobs have been lost in the current recession for the decline in gross domestic product than previous data would suggest. If the usual historical pattern had held, the unemployment rate would be around 8 percent, instead of 9.5 percent, he added.
He attributed this partly to the fact that the recession was brought on by a financial meltdown, which has put more pressure on firms to shed payroll commitments to conserve cash. Increases in productivity also have allowed employers to maintain output with fewer workers.
A Treasury study identified excess job loss as being concentrated in key sectors that are sensitive to credit availability or directly affected by the financial crisis -- manufacturing, construction, real estate, finance and insurance, he said.
Krueger said money from the Obama administration's $787 billion economic stimulus plan was being spent ahead of schedule, but lags in spending and job creation has caused the White House to predict that only about 10 percent of the total jobs impact over the life of the recovery act would occur in 2009, with the peak job impact not expected until the end of 2010.
Krueger said another major concern was that 40 percent of the unemployed report themselves as permanent job losers, which is well above the figure reached in previous recessions.
The share of the unemployed on permanent layoff is significantly elevated compared to what one would predict from the size of the GDP contraction, he said.