Joblessness still hangs over an improving economy

By JIM KUHNHENN
Associated Press

WASHINGTON (AP) -- Unemployment under President Barack Obama has remained high for the longest period since the Great Depression. Despite a slowly improving job market, the millions of Americans without jobs underscore weakness in the recovery, drag down consumer spending and still roil the nation's politics.

Wall Street has had its jitters but consumer confidence has improved and the housing market is making a solid comeback.

Yet, while economic conditions change, much remains the same.

On Friday, the government will release its monthly jobs report, and economists predict that U.S. employers added 165,000 jobs in June. That's fewer than in May and far short of the number of new jobs needed to push the unemployment rate down significantly from its current perch at 7.6 percent.

Unemployment has dropped from a high of 10 percent in October 2009. It also is the last consequence of a recession to show improvement in a recovery. But the jobless rate has remained at or above 7.5 percent for 53 months, a period that has left an unusually large number of people out of the work force for so long that some of them will likely never work again. Nearly 12 million people are searching for work and millions more are underemployed in involuntary part-time jobs.

The rate will take time to bring down, adding pressure on the economy and creating political problems for Obama and his Democratic allies in Congress. Moreover, experts say the rate could plateau at a higher level than the 4.7 percent unemployment in place before the recession hit in 2008.

The Federal Reserve last month issued an optimistic forecast that the jobless rate would drop to between 6.5 and 6.8 percent by the fourth quarter of next year. But the Fed has been overly optimistic before; in 2009 it projected unemployment would hit between 6.7 and 7.5 at the end of 2011. Instead, it remained at 9 percent for most of the year before dropping to 8.5 percent. It has also had to revise other subsequent projections upward.

Likewise, some forecasts have been too pessimistic. The non-partisan Congressional budget Office projected in February of 2012 that unemployment would remain above 8 percent until 2014.

"I think the forecast that makes most sense to me right now is the unemployment rate ticking down very slowly, something like a tenth of a percent every few months for the next year or so," said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and former economic adviser to Vice President Joe Biden.

Jack Kleinhenz, chief economist at the National Retail Federation, said he finds it hard to imagine unemployment getting as low as the Fed predicts.

Bernstein believes the Obama administration and Congress should embrace a policy of full employment, which means anyone who wants to work should be able to find a job and that the government should step in if the private sector can meet the demand. That doesn't mean zero unemployment. Even a humming economy has a level of joblessness -- there are always workers leaving or quitting jobs without lining up new ones, and the mismatch between jobs and skills means many workers inevitably are displaced by technology.

From 1999 through 2007, the Congressional Budget Office defined full employment as a jobless rate of 5 percent. Citing the difficulty the long-term unemployed face finding jobs due to the recession, the CBO now defines full-employment as 5.5 percent.

At the White House, officials are continuing to press proposals that have found little support in Congress, particularly among Republicans who control the House of Representatives. Administration officials also point out that there have been 37 straight months of job growth, with nearly 7 million jobs created and argue that the budget pinch created by this year's automatic spending cuts are hurting job creation.

Jason Furman, a veteran White House economist nominated to be chairman of Obama's Council of Economic Advisers, told a Senate committee that government could accelerate job growth by increasing spending in public works projects and tax credits to help small business expand payrolls -- both proposals that Obama has been making for two years. Furman also said that over the medium and long term the federal government should also make social programs for the poor and the elderly more efficient and change the nation's tax code. But each of those would require a massive -- and unlikely -- effort in Congress.

Republicans, unwilling to increase deficits in the short term, say Obama's health care law and a slew of proposed and existing regulations have increased uncertainty in the private sector and contributed to low job growth. They have pushed Obama to liberalize oil and gas exploration and to build an oil pipeline from Canada to the Gulf of Mexico as ways of increasing employment.

A Pew Research Center poll conducted last month found 44 percent approve of his handling of the economy, 50 percent disapprove. The public is divided on whether his administration's policies have improved economic conditions, with 35 percent saying they made things better, 35 percent worse and 27 percent saying they've had no effect on the economy.

"All this leads people to hold two opinions simultaneously: `It looks like things are getting a little better, but it still sucks for me,"' said Wes Anderson, a Republican pollster who has advised the House and Senate wings of the Republican Party.

"Obama owns the economy," Anderson said. "He owns it; he wears it."

Associated Press Director of Polling Jennifer Agiesta contributed to this article.