March 5, 2010 2:31 PM
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Light at the End of the Tunnel
(CBS)
The question we hear most often from viewers is, "when will we know the economy has turned?" Obviously nobody knows for certain when the economy will begin its charge into a sustained recovery. However there will be a clear indication that the country's battered labor market is on the mend. That counterintuitive sign will be higher unemployment.
There's no disputing rising unemployment early in a recession is bad thing. People buy less stuff, business sell less stuff, factories make less stuff so people lose their jobs. The downward spiral begins. Basic economics. As the job market tightens people stay unemployed longer. Eventually they become discouraged and give up looking for a job. But here's the important point -- Americans who stop looking for work are not included in the labor department's calculations of the unemployment rate.
Unemployment Rate Holds at 9.7%
Poll: Americans Worried About Job Loss
"If people see good job prospects and they start looking for a job, they are counted as part of the labor force", says economist Julia Coronado of BNP Paribas."So you could actually see the unemployment rate rise as the job market starts to heat up."
That may be where we are headed in the next couple of months as the unemployment rate creeps back over 9.7%. A look at the number of applicants per job openingsfinally shows some improvement in places like Denver, San Francisco and Richmond.
"We are actually seeing the labor force participation rate start to rise. It rose in January and again in February so we are starting to see some people come back to the labor force", says Coronado.
Another encouraging sign in the latest job report is a hint of recovery in small business. Unlike its payroll survey, the labor department's household data includes small business. Coronado believes that household survey shows the hemorrhaging of jobs from small business may have stopped.
"They got hit the absolute hardest in this recession and this may be suggesting that small businesses are coming back."
In the absence of another financial shock or further deterioration in the credit markets, we could be on the cusp of some significant job growth. It will take years of strong recovery to replace the nearly 10 million jobs lost since the Great Recession began in 2007. But more economists are beginning to believe long term sustained job growth could be in full swing by mid-summer. A 10% or higher unemployment rate could actually be the light at the end of the tunnel.
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