If U.S. President Barack Obama was counting on a falling unemployment rate to boost his re-election chances, he needs to look elsewhere for help. Analysts forecast only the slimmest of job gains in the runup to November’s election and little or no improvement in the high U.S. unemployment rate until at least the middle of next year, as the remarkably jobless economic recovery continues.
Canada faces similar, though less striking, conditions of feeble job growth or even small losses in a stalled economy. The September employment numbers for both countries will be released Friday.
“The job gain [in Canada] is a fair bit slower than the trend in the last six months,” said Avery Shenfeld, chief economist with CIBC World Markets. “But that average trend looks high, relative to the pace of economic output.” CIBC forecasts a small increase of 10,000 jobs in September, down from 34,300 in August, with unemployment unchanged at 7.3 per cent.
September “doesn’t look like it will be a great month for the [Canadian] labour market,” IHS Global Insight said in a preview. “We expect a slight dip in the unemployment rate, but for all the wrong reasons. Disheartened workers probably left the labour force, reducing the number of unemployed, and we anticipate that more jobs were lost than gained, producing a net loss in employment.” The forecast: a net loss of 15,000 jobs and a slight improvement in the jobless rate to 7.2 per cent.
The United States, meanwhile, is now into its fourth year of a decidedly modest recovery from the worst economic slump since the Great Depression, with real GDP about 1.5 percentage points above its former peak level. But 4.7 million jobs have gone missing in the process, close to two million of them in construction.
It’s not a situation that can be turned around quickly, despite another round of aggressive quantitative easing by the U.S. Federal Reserve. “It’s not until the second half of next year that we can hope to see stronger economic growth and much lower unemployment,” said Sal Guatieri, senior economist with BMO Nesbitt Burns.
The U.S. economy is expected to add between 110,000 and 120,000 jobs in September, compared with a disappointing 96,000 in August. But the U.S. needs to come up with about 125,000 net new jobs a month just to keep the unemployment rate flat. As a result, the consensus call is for a slight uptick back to 8.2 per cent from 8.1 in August.
Some of the economic fundamentals needed to drive job growth are already in place, including an improving U.S. housing market and rising consumer confidence. But worries about the so-called fiscal cliff, spending cuts and tax hikes in Washington, as well as heavy public-sector job cuts at the state and local levels still cast a dark shadow.
“The whole notion of business uncertainty stemming not just from [the crisis in] Europe, but everything going on in Washington is not the primary factor driving business employment decisions,” said Mickey Levy, chief economist with Bank of America. “But when added to the modest growth in product demand, it’s weighing heavily on things.”
Participation in the labour force has fallen to a 31-year low. If prospects improve, more people will resume their search for employment, so the actual jobless rate could remain elevated even if the economy picks up steam in 2013.
A “renewed slowing in the pace of job creation has resulted in the plateauing of the unemployment rate above 8 per cent, with the clear risk that the jobless situation will not materially improve during this period of expanding global economic weakness and the absence of a credible long-term plan to resolve its fiscal problems,” Aron Gampel, deputy chief economist with the Bank of Nova Scotia, said in a note. “Without the slide in labour force participation over the past couple of years of economic underperformance – a reflection of the labour fallout when an economy is unable to generate sufficient jobs and match the skills imbalance – the U.S. unemployment rate would be closer to 12 per cent.”