Most economists are in agreement that the recession ended sometime in the third quarter, and this was reinforced when the third quarter gross domestic product came out positive.
However, just because it appears the recession may be over, it does not mean it is smooth sailing from here on out. Last Thursday, the employment report came out and even though economic growth is beginning to reemerge, jobs are not. The unemployment rate rose from 9.8 percent, topping double digits at 10.2 percent for the month of October.
Why is unemployment still rising, and when will jobs start to return?
There are multiple reasons the unemployment rate is still rising, but the biggest fact is that employment is always lagging behind the economy. Businesses always hire in response to booming business, not in anticipation of it.
A lot of the economic growth that occurred in the third quarter was the result of government spending, a source of income that can’t be counted on in the future. Businesses know this and will ease into the hiring process as orders pick up and customers begin to return.
Before hiring of new workers can start, most businesses have to bring many employees cut to part-time back up to full-time hours. This is part of the reason you will see a recovery begin without jobs to pick up, or what some economists call a “job-less recovery.”
The major piece of the puzzle that will drive the unemployment rate down is the consumer. Currently consumers have been scared into hiding, and until they reemerge, businesses will be hesitant to hire workers. The American consumer accounts for nearly two-thirds of the U.S. GDP and, as it stands now, the government has tried to step in to pick up the slack, but can’t prop up the economy indefinitely.
When businesses see that consumers are becoming more confident and starting to spend again, then jobs will begin to return.
The road to recovery is not a short one and will not be smooth. Ben Bernanke, chairman of the Federal Reserve, has even predicted unemployment could rise well into next year, possibly topping out at 11 percent.
“The Great Recession,” as it has aptly been named, was the deepest seen since the 1930s and will not have a quick fix that many are hoping for.
If the government spending that juiced third quarter results is enough to jump-start a stagnating economy, then hiring will resume.
This picture won’t become clear for a few more quarters as the economy weans off government spending and back onto traditional, sustainable means.
