US job losses ease, a signal that recession may be over

A job-market report Friday bolsters the case that the recession may be over, but at the same time showed that employment conditions remain unusually weak.

The nation's unemployment rose in August to 9.7 percent, up from 9.4 percent a month before.

The good news was that the pace at which jobs are disappearing slowed, continuing a trend that has been visible in general since February. Employers shrank their payrolls by 216,000 jobs in August, down from 276,000 in July and 741,000 in January, the recession's peak job-loss month.

How could the recession be over if businesses are still cutting back?

The job market tends to turn on a cycle that's slightly behind the overall economy. It's common for job losses to continue for a while even after recessions end, because it takes some time for the turnaround to gain traction.

A slowing pace of job erosion adds to other positive indicators – notably a rise in industrial production in after eight months of jobs losses. Most economists predict America's gross domestic product will start showing gains again in the current quarter.

A lag in employment

Even if the recession is over – something that will be officially declared months after the fact – this isn't synonymous with "back to normal." The 2007-2009 recession has been unusually deep, which means it may take longer than usual before people feel jobs are easy to come by.

"The current path of employment dramatically lags the path ... of the prior seven economic cycles," John Silvia, chief economist at Wells Fargo Securities, writes in a report analyzing the shape of the recovery ahead.

Here's how dramatically: The number of jobs in the US has fallen by about 5 percent – or 6.9 million - since the start of the recession in December 2007. In the prior seven recessions, on average, the number of jobs was down by 1 percent. Some of the numbers can be seen in an interactive website created by the Federal Reserve Bank of Minneapolis.

Sometimes, after sharp job losses the economy has bounced back quickly. This time, Wells Fargo's forecasters are among many who think that won't be the case. Many consumers, who normally help lead the way out of a slump, are struggling with high debt loads, shrunken home values, and pressure on their paychecks.

Impact of stimulus

Still, Mr. Silvia says what happens next isn't a foregone conclusion. He outlines several forces that will affect the shape of recovery:

• The impact of government stimulus efforts, Federal Reserve monetary policy, and how policymakers design the "exit” or withdrawal of this stimulus.
• Shifts in investor, business, and consumer expectations.
• Interest rates.
• Inflation, including in the prices of volatile commodities such as oil.

In the deep recession of 1981-82, the job picture turned from negative to positive as the recession ended. In 1991 and 2001, by contrast, recessions ended but were followed by several months of job declines and then only a tepid pickup in hiring.

Getting there

Vice President Joe Biden acknowledged the potential slog ahead Thursday, even as he touted the positive impact that President Obama's $787 billion economic stimulus package is having.

"Are we there yet? No, but we’re moving," he said.

Progress is visible on all the major fronts that economists look at to determine when recessions begin and end.

The job-market erosion could turn into modest job growth early next year, economists say. Industrial production and sales of goods appear to have turned a corner toward gains after months of steep decline. A decline in personal incomes – one guideline on the capacity of consumers to spend – has shown some stabilization.

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