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WASHINGTON -- The job market is doing even worse than the overall economy, prompting concern inside and outside the government that deeper-than-expected joblessness could persist once the recession ends.
Breaking from historical patterns, the unemployment rate -- currently at 9.5% -- is one to 1.5 percentage points higher than would be expected under one economic rule of thumb, says Lawrence Summers, President Barack Obama's top economic adviser. Since the recession began in December 2007, the economy has lost 6.5 million jobs, 4.7% of total employment. The unemployment rate has jumped five percentage points, while the economy has contracted by roughly 2.5%.
In recent days, Mr. Summers, White House budget director Peter Orszag and Fed Chairman Ben Bernanke have all talked publicly about the unusual disconnect between growth and employment. Stubborn unemployment could be a political problem for Mr. Obama, who pushed hard for a $787 billion stimulus plan this year and has already been criticized by Republicans for failing to stem the rise in the joblessness.
Though today's disparity between growth and jobs is especially stark, a jobless recovery wouldn't be new: The past two recessions were marked by firms reluctant to resume hiring right away after demand recovered. The current disconnect could reflect an unanticipated surge in productivity -- companies finding ways to increase output with fewer workers. That could set up the economy to grow rapidly in future years. Rising productivity is the linchpin of economic growth and rising living standards.
But there are darker scenarios. Struggling workers, whose wages also are being squeezed, could drag a fragile economy back into deep recession.
"Final demand and production have shown tentative signs of stabilization," Mr. Bernanke told lawmakers this week as part of the Fed chairman's semiannual report to Congress. "The labor market, however, has continued to weaken."
Job insecurity could lead consumers to further pull back spending, he said, calling it "an important risk to the outlook."
The latest data imply productivity is pushing higher. Macroeconomic Advisers, a St. Louis forecaster, estimates productivity grew at a rapid 5% annual rate in the second quarter. While painful for workers who lose jobs, advances in productivity could help get the economy on steadier footing. When productivity rose in the 1990s -- thanks partly to technological advances -- the economy boomed, lifting wages.
Some companies are reaping gains as they clamp down on labor costs. While corporate profits are down from a year ago, many of the biggest companies reporting income figures for the second quarter are ahead of expectations because they have cut costs so aggressively.
Caterpillar Inc. this week raised its profit forecast for the year, crediting cost-cutting efforts. The company's second-quarter profits were $371 million, down from $1.106 billion a year earlier, but it said it squeezed operating costs by $4.5 billion from a year earlier. Layoffs and early retirements have reduced its work force this year by 17,100, 15% of the total, and it is instituting "rolling layoffs" in which it has been furloughing workers a few weeks at a time.
"When the economy turns around and demand picks up, we're much better suited to ramp back up because we're not looking at bringing on many new people and getting them up to speed," says Jim Dugan, a Caterpillar spokesman.
Kellogg Co. said in May that net income for its first quarter rose 1.3% as cost-cutting offset falling revenue. International Business Machines Corp. said second-quarter profit rose 12% despite falling revenue. The secret: It is cutting costs by $3.5 billion this year.
The latest data imply productivity is pushing higher. Macroeconomic Advisers, a St. Louis forecaster, estimates productivity grew at a rapid 5% annual rate in the second quarter. While painful for workers who lose jobs, advances in productivity could help get the economy on steadier footing. When productivity rose in the 1990s -- thanks partly to technological advances -- the economy boomed, lifting wages.
Some companies are reaping gains as they clamp down on labor costs. While corporate profits are down from a year ago, many of the biggest companies reporting income figures for the second quarter are ahead of expectations because they have cut costs so aggressively.
Caterpillar Inc. this week raised its profit forecast for the year, crediting cost-cutting efforts. The company's second-quarter profits were $371 million, down from $1.106 billion a year earlier, but it said it squeezed operating costs by $4.5 billion from a year earlier. Layoffs and early retirements have reduced its work force this year by 17,100, 15% of the total, and it is instituting "rolling layoffs" in which it has been furloughing workers a few weeks at a time.
"When the economy turns around and demand picks up, we're much better suited to ramp back up because we're not looking at bringing on many new people and getting them up to speed," says Jim Dugan, a Caterpillar spokesman.
Kellogg Co. said in May that net income for its first quarter rose 1.3% as cost-cutting offset falling revenue. International Business Machines Corp. said second-quarter profit rose 12% despite falling revenue. The secret: It is cutting costs by $3.5 billion this year.
By JON HILSENRATH and DEBORAH SOLOMON
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=IBM
Breaking from historical patterns, the unemployment rate -- currently at 9.5% -- is one to 1.5 percentage points higher than would be expected under one economic rule of thumb, says Lawrence Summers, President Barack Obama's top economic adviser. Since the recession began in December 2007, the economy has lost 6.5 million jobs, 4.7% of total employment. The unemployment rate has jumped five percentage points, while the economy has contracted by roughly 2.5%.
In recent days, Mr. Summers, White House budget director Peter Orszag and Fed Chairman Ben Bernanke have all talked publicly about the unusual disconnect between growth and employment. Stubborn unemployment could be a political problem for Mr. Obama, who pushed hard for a $787 billion stimulus plan this year and has already been criticized by Republicans for failing to stem the rise in the joblessness.
Though today's disparity between growth and jobs is especially stark, a jobless recovery wouldn't be new: The past two recessions were marked by firms reluctant to resume hiring right away after demand recovered. The current disconnect could reflect an unanticipated surge in productivity -- companies finding ways to increase output with fewer workers. That could set up the economy to grow rapidly in future years. Rising productivity is the linchpin of economic growth and rising living standards.
But there are darker scenarios. Struggling workers, whose wages also are being squeezed, could drag a fragile economy back into deep recession.
"Final demand and production have shown tentative signs of stabilization," Mr. Bernanke told lawmakers this week as part of the Fed chairman's semiannual report to Congress. "The labor market, however, has continued to weaken."
Job insecurity could lead consumers to further pull back spending, he said, calling it "an important risk to the outlook."
The latest data imply productivity is pushing higher. Macroeconomic Advisers, a St. Louis forecaster, estimates productivity grew at a rapid 5% annual rate in the second quarter. While painful for workers who lose jobs, advances in productivity could help get the economy on steadier footing. When productivity rose in the 1990s -- thanks partly to technological advances -- the economy boomed, lifting wages.
Some companies are reaping gains as they clamp down on labor costs. While corporate profits are down from a year ago, many of the biggest companies reporting income figures for the second quarter are ahead of expectations because they have cut costs so aggressively.
Caterpillar Inc. this week raised its profit forecast for the year, crediting cost-cutting efforts. The company's second-quarter profits were $371 million, down from $1.106 billion a year earlier, but it said it squeezed operating costs by $4.5 billion from a year earlier. Layoffs and early retirements have reduced its work force this year by 17,100, 15% of the total, and it is instituting "rolling layoffs" in which it has been furloughing workers a few weeks at a time.
"When the economy turns around and demand picks up, we're much better suited to ramp back up because we're not looking at bringing on many new people and getting them up to speed," says Jim Dugan, a Caterpillar spokesman.
Kellogg Co. said in May that net income for its first quarter rose 1.3% as cost-cutting offset falling revenue. International Business Machines Corp. said second-quarter profit rose 12% despite falling revenue. The secret: It is cutting costs by $3.5 billion this year.
The latest data imply productivity is pushing higher. Macroeconomic Advisers, a St. Louis forecaster, estimates productivity grew at a rapid 5% annual rate in the second quarter. While painful for workers who lose jobs, advances in productivity could help get the economy on steadier footing. When productivity rose in the 1990s -- thanks partly to technological advances -- the economy boomed, lifting wages.
Some companies are reaping gains as they clamp down on labor costs. While corporate profits are down from a year ago, many of the biggest companies reporting income figures for the second quarter are ahead of expectations because they have cut costs so aggressively.
Caterpillar Inc. this week raised its profit forecast for the year, crediting cost-cutting efforts. The company's second-quarter profits were $371 million, down from $1.106 billion a year earlier, but it said it squeezed operating costs by $4.5 billion from a year earlier. Layoffs and early retirements have reduced its work force this year by 17,100, 15% of the total, and it is instituting "rolling layoffs" in which it has been furloughing workers a few weeks at a time.
"When the economy turns around and demand picks up, we're much better suited to ramp back up because we're not looking at bringing on many new people and getting them up to speed," says Jim Dugan, a Caterpillar spokesman.
Kellogg Co. said in May that net income for its first quarter rose 1.3% as cost-cutting offset falling revenue. International Business Machines Corp. said second-quarter profit rose 12% despite falling revenue. The secret: It is cutting costs by $3.5 billion this year.
By JON HILSENRATH and DEBORAH SOLOMON
http://online.wsj.com/public/quotes/main.html?type=djn&symbol=IBM
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