Even as economy mends, a jobless decade may loom

By JEANNINE AVERSA

AP Economics Writer

WASHINGTON — Call it the Terrible Teens.

The decade ahead could be a brutal one for America’s unemployed — and for people with jobs hoping for pay raises.

At best, it could take until the middle of the decade for the nation to generate enough jobs to drive down the unemployment rate to a normal 5 or 6 percent and keep it there. At worst, that won’t happen until much later — perhaps not until the next decade.

The deepest and most enduring recession since the 1930s has battered America’s work force.

The unemployed number 15.4 million. The jobless rate is 10 percent. More than 7 million jobs have vanished. People out of work at least six months number a record 5.9 million. And household income, adjusted for inflation, has shrunk in the past decade.

Most economists say it could take at least until 2015 for the unemployment rate to drop down to a historically more normal 5.5 percent. And with the job market likely to stay weak, some also foresee another decade of wage stagnation.

Even though the economy will likely keep growing, the pace is expected to be plodding. That will make employers reluctant to hire. Further contributing to high unemployment is the likelihood of more people competing for jobs, baby boomers delaying retirement and interest rates edging higher.

All this would come after a decade that created relatively few jobs: a net total of just 464,000. By contrast, 21.7 million new jobs were generated between 1989 and 1999.

Economist David Levy, chairman of the Jerome Levy Forecasting Center, says the country faces a new era of chronically high unemployment, averaging 8 percent or more over the next decade.

The “New Abnormal,” he calls it.

Levy thinks the New Abnormal also means average pay will dwindle, along with consumer prices. That would make it harder for households to pay down debt, he warns.

By the Federal Reserve’s reckoning, the jobless rate could remain as high as 7.6 percent in 2012. And it would take two or three years after that for the job market to return to normal, the Fed says.

It’s possible jobs won’t return to pre-recession levels at any point over the next 10 years, Levy says.

That’s mainly because the economy’s recovery, sluggish by historical standards, isn’t expected to regain its vigor over the next few years. As a result, companies will be in no rush to ramp up hiring.

Other analysts think the economy will recover the jobs wiped out by the recession by 2013 or 2014 but that the unemployment rate will stay high. They note that the healing economy will cause more people to stream back into the labor force, vying for too-few jobs.

In addition, baby boomers whose retirement accounts have shrunk could put off retiring and stay in the work force longer. That would leave fewer positions available for the unemployed.

Other contributing forces — businesses squeezing more work from employees they still have and relying more on part-time and overseas help — have intensified. And record-high federal budget deficits and the threat of inflation could drive up interest rates, which could hobble growth and restrict job creation.

All those factors could combine to keep unemployment high.

“It will be the mother of all jobless recoveries,” predicts economic historian John Steel Gordon.

On the other hand, it’s possible some technological innovation not yet envisioned could generate a wave of jobs. Yet at the moment, most economists aren’t betting that any such breakthroughs will rescue the labor market.

The last time the jobless rate reached double digits, in the early 1980s, it took six years to bring it down to normal levels.

Unemployment hit a post-World War II high of 10.8 percent at the end of 1982 as the country was emerging from a severe recession. The rate fell to around 5 percent in 1988. It took less than two years for the number of jobs to return to its pre-recession level.

In this recovery, the economy is far more fragile.

Hard-to-get credit is exerting a drag. Wounds from the banking system’s worst crisis since the Great Depression will take years to fully heal. People and companies, scarred by the crisis, are likely to restrain borrowing, spending and investing.

Some analysts think the jobless rate might have already peaked at 10.2 percent in October. But most economists predict the rate will peak at around 10.5 percent by the middle of next year.

“We are digging out of a very deep hole,” says Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego and chief economist for the National Association for Business Economics.

Reaser estimates it will take until 2015 for the unemployment rate to drop to 5.5 percent.

A sputtering job market carries other consequences. One is flat wages. When many people compete for few jobs, employers have no incentive to raise pay.

The economic shocks of the past decade already have cut into Americans’ incomes. That’s among the reasons why people feel they’re standing still economically.

Median household income, adjusted for inflation, fell to $50,303 in 2008, according to the U.S. Census. That gauge combines wages and salaries, investment income and government benefit payments like Social Security. It’s down 4 percent from a peak of $52,587 in 1999, when incomes were bolstered by stock gains from the dot-com boom.

That bubble burst in 2000. Since then, workers have seen meager wage gains. Adjusted for inflation, wages grew about 13 percent in the past 10 years — the slowest pace in five decades, according to calculations made by Scott Hoyt of Moody’s Economy.com.

That trend is predicted to continue.

“There will be a continued hollowing-out of the middle class,” says H.W. Brands, a historian at the University of Texas.

He points to productivity growth, which has let companies produce more with leaner work forces, the offshoring of service-sector jobs and the shrinking of factory jobs.

That’s why Vicki Adriano, 51, who works at a General Motors plant in Lordstown, Ohio, looks ahead to the coming decade with trepidation.

The economic wreckage of the past year means she’ll probably have to work longer than she had expected at the factory— at least seven more years. She frets about the loss of economic security.

“Everything you worked for all those years can be gone in a minute,” she says.

The past and future decade in business at a glance

A look at the decade that was and the decade to come, by industry:

BANKING

THE PAST DECADE: The nation’s big banks swaggered into the decade as owners of the world. They leave it humbled and, in some cases, wards of the state.

After receiving billions in federal bailout money last year, the banking industry has partly recovered from the worst economic downturn since the Great Depression. Some banks, including Goldman Sachs Group, Morgan Stanley and JPMorgan Chase & Co., have repaid their bailout funds and are making big money again trading stocks, bonds and other risky securities.

Other large institutions remain hobbled. American International Group Inc. gave the government an 80 percent ownership stake in return for a $182.5 billion taxpayer rescue aimed at keeping the giant insurer from collapsing during the height of the crisis.

It’s a stark contrast from how the banking industry began the decade. In 1999, the Depression-era law that separated commercial and investment banks was repealed, ushering in a period of unprecedented banking profits and record-high executive bonuses.

THE NEXT DECADE: The question now is whether banks will return to their high-flying ways after they fully regain their health. The Obama administration wants sweeping financial reforms to curb excessive risk-taking. But the banking industry is fighting to scale back the overhaul out of fear that it will cut into profits.

A major flash point is the effort to regulate over-the-counter derivatives, the complex, often highly leveraged instruments that were blamed for accelerating last year’s meltdown. The government wants legislation requiring derivative trades to go through a clearinghouse. Today, they’re traded directly between buyers and sellers, an arrangement that earns billions each year for banks.

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REAL ESTATE

THE PAST DECADE: The real estate boom and bust were the biggest since the Great Depression.

With interest rates at near-historic lows, home sales this decade skyrocketed, propelling homeownership rates and new construction to all-time highs. Lending standards sank through the floor. People bought homes with little or no down payment, and in many cases without proof of income or assets. Homeowners refinanced and raided their equity.

Home prices soared 88 percent between the first quarter of 2000 and the peak in the first quarter of 2006.

Then, the crash.

Homes languished unsold and millions of Americans went into foreclosure. Housing construction tumbled to the lowest level in 50 years. Home values plunged, eviscerating $4 trillion in home equity. By mid-2009, home prices were down 30 percent — even further in parts of California, Nevada, Florida and other markets where prices soared highest.

THE NEXT DECADE: It could be another five or 10 years before homes in the hardest-hit markets regain the value they had at the height of the housing boom.

What else will shape the housing market in the next decade? One of the biggest questions is how the government will extricate itself from control of Fannie Mae and Freddie Mac. The two companies, which were on the brink of failure in the fall of 2008 and seized by the government, own or guarantee about half of all home mortgages.

Another wild card is the Federal Housing Administration, which now insures one in four new loans. Rising foreclosures have eroded the agency’s financial cushion below the safety line. Will it need a taxpayer bailout?

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RETAIL

THE PAST DECADE: For stores and consumers, a long feast was punctuated by a stark famine.

For most of the decade, retail growth was spurred by consumers who had easy credit from home equity or plastic. The free spending encouraged retailers to create new brand offshoots to cater to every shopper’s whim.

Online shopping exploded, from $24 billion in 2000 to what’s expected to be $157 billion by year-end.

Department stores were big losers. That business has consolidated further, leaving more power in the hands of a few players such as Macy’s and J.C. Penney.

THE NEXT DECADE: Consumers’ hard pullback in spending triggered by the housing meltdown and ensuing recession and credit squeeze is remaking the reeling retail industry.

Lines between pharmacy, clothing, food and toy retailers, which have already started to blur, will get even fuzzier. Toys R Us and others are expanding into detergent and other necessities to keep shoppers in stores longer.

Stores will get smaller as merchants rely increasingly on Web business and get choosier about what they carry on their shelves.

While experts don’t see stores’ online sales topping their land-based business, consumers will be able to shop anywhere — even from their refrigerators, says John Long, retail strategist at Kurt Salmon Associates.

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HEALTH

THE PAST DECADE: Health care spending as a percentage of gross domestic product rose from 13.8 percent in 2000 to a projected 17.6 percent in 2009. That adds up to $2.5 trillion and includes everything from insurance payments to out-of-pocket costs for consumers. Medicare beneficiaries finally got prescription drug coverage mid-decade bringing more revenue to drug companies and insurers.

THE DECADE AHEAD: Health spending’s share of GDP is projected to rise to 20.3 percent, or $4.35 trillion, by 2018.

The health care overhaul effort advancing in Congress is expected to add both customers and financial pressure for insurers. The goal is to cover the uninsured and rein in ballooning costs. But analysts say proposed taxes on insurers, weak penalties for those who don’t buy policies and the mandate that insurers cover all comers will lead to higher prices and do little to corral rising medical costs because many healthy people will risk going without coverage. They predict another reform push in about five years focusing on controlling expenses.

Pharmaceutical companies increasingly will turn their research and strategic partnerships and acquisition efforts toward biotechnology drugs and vaccines to generate high-priced medicines. The remarkable string of blockbuster drugs developed since the 1990s is set to go off patent. That includes cholesterol-lowering drug Lipitor and the blood thinner Plavix. Analysts say the most promising innovations will continue to be biotech drugs, which can be tailored to increasingly specific patient groups.

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MANUFACTURING

THE PAST DECADE: U.S. manufacturing has taken the brunt of the decade’s two recessions, losing more than 5.6 million factory jobs. But in between the downturns, manufacturers generated big profits in their remaining areas of strength — passenger jets, semiconductors, backhoes, cans of beer and pharmaceuticals.

THE DECADE AHEAD: A very long recovery lies ahead. Some manufacturers, like automakers, won’t ever return to their former scale in the U.S. Others face stiffer competition from countries like China, which aims to challenge U.S. dominance in the construction of jumbo jets. Big economic issues like free trade agreements, currency prices and corporate taxes could affect whether manufacturing grows or not.

Manufacturers will put more computers to work, and fewer humans. And they’ll squeeze more out of their remaining employees, who will need more than a high school degree to get work in manufacturing. As a result, it’s likely manufacturing faces a continued evaporation of jobs.

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AUTOS

THE PAST DECADE: A record 17.3 million vehicles were sold in the U.S. in 2000, and General Motors, Ford and Chrysler controlled 67 percent of that market. But as Detroit focused on profitable SUVs, Japanese automakers and new players such as Hyundai grabbed buyers with newer and better cars. Gas prices accelerated the SUV’s decline, and by 2008, the Detroit Three’s market share dropped to 48 percent and Toyota outsold GM worldwide. Faced with staggering debt and a credit crisis, GM and Chrysler went into bankruptcy in 2009.

THE DECADE AHEAD: China is passing the U.S. as the largest auto market. Automakers will also look to India, Russia and Brazil to expand sales. Chinese automakers are expected to start selling cars in the U.S.

The U.S. will require significant improvements in fuel economy, and automakers are racing to develop electric, hybrid, clean diesel and hydrogen-powered cars. Technology also will make cars safer.

The wrenching cost cuts of 2000s will help automakers turn profits and increase sales in the next decade, according to Erich Merkle, president of the consulting firm autoconomy.com. But he also predicts volatility in the market because of inflation and gas prices.

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ENERGY

THE PAST DECADE: A barrel of oil cost $20 as the decade began. It peaked at $147 last year, as a new class of investors pumped money into futures contracts and producers struggled to keep up with energy appetites in the developing world. Americans paid more than $4 for a gallon of gasoline in the summer of 2008. Then oil and gas prices tumbled as the global recession squelched demand.

Natural gas producers had unlocked massive new supplies by decade’s end, building record U.S. reserves that could last for a century.

THE DECADE AHEAD: By 2019, many cars may get 50 miles per gallon or better. Improved gas mileage, rising prices for gasoline and more energy-efficient homes are seen keeping demand for oil and natural gas at moderate levels in the U.S.

Even so, nearly half of the nation’s electricity still will come from coal even with more wind and solar energy sources.

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AIRLINES

THE PAST DECADE: The 2000s was when the Internet caught up with airlines. Consumers started using online travel sites to compare ticket prices, making it easier to find the cheapest seats.

Demand dropped after Sept. 11, as terror fears and recession kept travelers away. By 2005, four of the nation’s seven largest airlines were operating under bankruptcy protection. They emerged, only to get hammered by record fuel prices and another recession in 2008.

THE DECADE AHEAD: In the next decade, flights may get shorter. Airlines can’t bend the laws of physics. But satellite navigation could let them fly straight from city to city instead of along routes determined by the location of radio beacons.

Shorter flights means lower fuel bills. Airlines need the help.

“We do have an industry ... that is hanging on by its fingernails,” says Bill Swelbar, who studies airline finance at the Massachusetts Institute of Technology’s International Center for Air Transportation.

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MEDIA/TECHNOLOGY

THE PAST DECADE: Here’s a cruel irony: When Web startups flamed out in the dot-com bust that began this decade, established media empires may have been the biggest losers.

That Internet meltdown seemed to validate traditional publishers and broadcasters, encouraging them to cling to their ways as brash newcomers got their comeuppance. It seemed conceivable that fledgling sites like Craigslist and Google might not last.

Newspapers and magazines are the endangered species today. Vast amounts of their revenue are siphoned by Internet alternatives such as Craigslist’s classified ad service and Google’s information smorgasbord and marketing magic.

Broadcasters are hurting too, facing challenges they didn’t envision at the start of the decade. The advent of YouTube (now part of Google) and the proliferation of digital video recorders let anyone play filmmaker.

THE DECADE AHEAD: To survive the next decade, media companies will have to think more like Netflix Inc.

Netflix built its business this decade by taking DVD-rental requests online and mailing discs to subscribers. If it wanted to maximize short-term profits, Netflix would have just stuck to DVD rentals. But Netflix has invested heavily in the technology and rights to stream movies and TV shows over the Internet. It’s already preparing for the day that DVDs seem as antiquated as VCRs — and, eventually, newspapers in print.