TOPICS > Economy

Economy Shows New Signs of Growth, but Jobs Still Lag

October 29, 2009 at 6:02 PM EST
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The U.S. economy ended a year of contraction in the third quarter, expanding by 3.5 percent. While much of the growth is being attributed to President Obama's $787 billion stimulus plan, critics continue to ask, when will jobs return?
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JIM LEHRER: The U.S. economy is growing again for the first time in more than a year. The government reported new numbers today that showed expansion in the third quarter.

That touched off a big rally on Wall Street, with the Dow Jones industrial average gaining 200 points. At the same time, there were continuing questions about the employment picture.

Jeffrey Brown has our lead story report.

JEFFREY BROWN: The news came a year after the financial meltdown touched off the deepest recession in 70 years. The Commerce Department announced the gross domestic product grew by 3.5 percent from July through September, marking an end to four straight quarters of decline.

But there were caveats: Much of the growth depended on government spending for new cars under cash for clunkers and new homes aided by a temporary tax credit for first-time home buyers.

DAVID WYSS, chief economist, Standard & Poor’s: I think the U.S. economy is out of recession. I still want to see some positive employment numbers, though. That’s what really counts for people. And, remember, about half the increase in the third quarter just came from cars, from that cash for clunkers program.

JEFFREY BROWN: In fact, today’s news about jobs was mixed. First-time claims for unemployment benefits fell less than expected last week, even as the overall number of people relying on those benefits continued to drop.

For his part, President Obama welcomed word of growth, but said joblessness is still a major obstacle to full recovery.

U.S. PRESIDENT BARACK OBAMA: We have got a long way to go to fully restore our economy and recover from what’s been the longest and deepest downturn since the Great Depression.

And while this report today represents real progress, the benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we’re creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well.

JEFFREY BROWN: As the president spoke, a bill to extend benefits for many of the unemployed was before the Senate. But Majority Leader Harry Reid complained, wrangling over other issues was delaying actions.

SEN. HARRY REID, D-Nev.: We have got to get the unemployment done. We have a million people that are waiting for that money.

JEFFREY BROWN: In the meantime, the administration faced questions about just how many jobs its stimulus programs are creating or saving.

The government claimed 30,000 jobs in its initial counting, but the Associated Press reported, a review of contracts shows that number is at least 5,000 too high. The White House said it’s correcting early mistakes, but believes the AP account “draws on misleading conclusions from a handful of examples.”

But there was no dispute on the floor of the Stock Exchange. The stronger-than-expected report on GDP broke a four-day slide. The Dow Jones industrial average closed at 9962, gaining 2 percent in value for the day. The Nasdaq rose nearly that much, gaining 38 points, to close at 2097.

So, how do these latest economic numbers square with what is happening on Main Street?

We get a snapshot of three regions today from Shirley Leung, business editor or The Boston Globe; Diane Swonk, chief economist at Mesirow Financial, a diversified financial services firm in Chicago, and William Conerly, an economist who runs his own consulting firm in Portland, Oregon.

Diane Swonk, I will start with you.

And let’s start with the good news of the GDP growth. What do you see in your region that supports that?

Signs of recovery

William Conerly
Conerly Consulting
What we're seeing right now is the same story. It's a global downturn and the beginning of a global recovery.

DIANE SWONK, senior managing director and chief economist, Mesirow Financial Holdings, Inc.: Well, the one piece of good news is the return in exports, the rise in exports.

And we have seen, although the likes of Caterpillar and John Deere were hit very hard by the recession, companies like that in our own background here in the Industrial Midwest are starting to show guidance that they have got orders picked up. They have called back some workers, although not a lot. Employment is still a major problem, with higher unemployment here than elsewhere.

But that clearly is a light at the end of the tunnel for us, because the export side of our manufacturing sector is going to do much better than the auto side as we emerge from this recession.

JEFFREY BROWN: And that's -- staying with you, that's connected clearly to other reports we have seen where overseas some countries are doing better, right?

DIANE SWONK: Absolutely. In fact, the developing nations, in particular, they need the kind of equipment that we build to build roads and develop, and also to develop their agricultural infrastructure.

So, all of that is feeding into profits in this region, not a lot of jobs, but, eventually, those profits come right through Chicago's financial services center, which is very important to us here in Chicago. And that will eventually create some jobs.

JEFFREY BROWN: All right, William Conerly, what do you see that -- let's start on the good side here, good side of the equation. What do you see?

WILLIAM CONERLY, Conerly Consulting: Well, sometimes, when we look at a region, we're seeing things that are very distinctive and a region has its own dynamic.

What we're seeing right now is the same story. It's a global downturn and the beginning of a global recovery. And you walk into the malls in the Western states, it's pretty much the same thing, housing prices starting to turn up from a very low bottom. So, we in the West are seeing the upturn, but it's just the very beginnings, and we haven't dug ourself out of the hole that we were in as a result of the recession.

JEFFREY BROWN: Are there key sectors or industries in particular that you could point to or are that are your weather vanes for seeing what's going on?

WILLIAM CONERLY: Well, up in Seattle, they keep an eye on aircraft orders. And we're seeing, in general, businesses are starting to look at spending money on new equipment. They're not spending a lot, but we're seeing a turnaround in attitudes on that.

The wood products industry has been very important here, but there's no sign of strength yet, because of the housing weakness. But I think the biggest thing, as Diane mentioned, is the exports are strong, and the West Coast is very important on exports.

And then those consumers, I think what is happening is, people have been saving money for a year, and now they're saying, wow, I guess I have dodged a bullet. We're not getting laid off -- those who aren't laid off. We have dodged a bullet. And now it's time to maybe get a new pair of shoes, a new car, or a new computer.

JEFFREY BROWN: Now, Shirley Leung, I understand you just finished a big series on the economy, the regional economy. What were the key points? What were the key findings?

SHIRLEY LEUNG, business editor, "The Boston Globe": Well, the key findings is that Massachusetts' economy is in a fragile recovery, but it's going to be a jobless recovery. It is quite frightening.

Over the next year, production of goods and services will increase by 2 percent, but we're going to continue to shed about 37,000 jobs. And, today, as the nation's economy reported, I guess, great numbers, here in Massachusetts, our economy actually shrunk about by 1.1 percent.

And that came as a bit of a surprise to economists here and, frankly, to us who have been reporting this story, because we really thought that our economy had come out of recession in -- over the summer. Our tech companies are well into a recovery, and they're doing better, and everything seems to be stabilizing. But it seems like things are a little bit slower than we had thought.

JEFFREY BROWN: Well, you got your wire there, Shirley?

SHIRLEY LEUNG: Sorry. I have got to find my wire.

Job creation remains stalled

Diane Swonk
Mesirow Financial Holdings, Inc.:
You're not getting jobs back, even as the numbers go positive.

JEFFREY BROWN: OK. All right. I will let you fix that.

Let me go on to Diane Swonk. I wanted to ask you about the -- well, Shirley just started this question of the jobless recovery. We heard the president talk about it. We hear it over and over, that, even as things get to look better, it doesn't feel that way for most people as long as unemployment remains high.

How does that play out where you are?

DIANE SWONK: That's absolutely true.

In fact, even as manufacturing comes back, remember, productivity growth is so strong, that they're not adding many more workers, if any more workers. They don't even have to add more production shifts to increase production here in the Midwest. So, you're not getting jobs back, even as the numbers go positive.

And, also, the other issue is context. You know, 3.5 percent growth, given the declines that we have seen, the severe contraction we have seen, particularly for the Midwest, we would need to see at least double that to really have it materialize in any kind of meaningful job growth in early 2010.

So, I think we're going to see very marginal job growth. We're seeing small businesses in particular complain that much of their credit was through consumer home equity lines of credit. And that has dried up on them. And they're the major generator of jobs, even here in the Midwest.

And, so, given that that's not going to be there, that means a very slow trickle of jobs returning.

JEFFREY BROWN: And, William Conerly, how does the job picture look where you are?

WILLIAM CONERLY: Well, we're still losing jobs in virtually all of the Western states. A couple are just starting to flatten out. But it's pretty grim.

And I think it's important to remember what we economists think of what we say recession. We're thinking of the downward period. And we're at a stage right now where we are nowhere close to the previous peak, but, because we have turned up, we economists are saying we're out of recession.

But the man and woman are the street are saying, heck, no, we're still in recession. And I think it's going to be about another year before we get the economy growing enough that the people -- everyday people will say, yes, we're out of recession.

JEFFREY BROWN: So...

WILLIAM CONERLY: I'm a...

BROWN: Oh, I'm sorry. Go ahead.

WILLIAM CONERLY: I'm a little more optimistic on the job creation, because, as I visit my clients, they have really cut their labor force back. And if they get much in the way of an increase in orders, they're going to have to start spending more money on labor and spending more money on raw materials. So, I think this economy could swing into a stronger positive a little faster than we think.

JEFFREY BROWN: Shirley, are you back? Can you hear me?

SHIRLEY LEUNG: I'm back.

JEFFREY BROWN: OK. Thanks.

Another issue that, of course, is on the table is to what extent the growth that we're seeing comes from government programs, right, rescue or stimulus programs.

SHIRLEY LEUNG: Right. Right.

JEFFREY BROWN: Well, how -- and what happens as those begin to fade away or get taken off the table? How much has that played a role where you are, and what are the fears going forward?

Impact of the stimulus

Shirley Leung
The Boston Globe
I think that, you know, stimulus definitely played a role, and particularly cash for clunkers, in the positive GDP growth.

SHIRLEY LEUNG: Well, I think that, you know, stimulus definitely played a role, and particularly cash for clunkers, in the positive GDP growth.

I think it's a big question mark that what will happen in the next quarter. I don't think I'm going out on a limb. I predict our -- the next quarter that we will see that the economy will probably go back into a recession, or at least the numbers will go back into recession.

We probably are still in a recession. I just wanted to point out what's happening in Massachusetts. You know, yesterday, the governor here announced that we had about $2 billion of stimulus money create about 9,000 jobs. Feels great.

Then, today, he's announcing that the state will have to lay off 1,000 jobs. So, it seems that we take one step forward and one step back. You know, and so, when the stimulus money runs out, I think that we're going to have some problems with a continuing unemployment.

JEFFREY BROWN: And, so, you see the shifts that quickly, day by day?

SHIRLEY LEUNG: Yes.

JEFFREY BROWN: Diane, you -- I mean, the cash for clunkers clearly helped the Midwest region, right?

DIANE SWONK: It was huge in creating production.

JEFFREY BROWN: Yes.

DIANE SWONK: There's no question.

And, in fact, what I think it did is, it stopped many companies that were hanging by their fingernails, in terms of going into bankruptcy, in the auto industry from actually falling into bankruptcy. So, that's important, because it's mitigating losses.

But it really underscores the point of where the government has played the role here. It's played a role in mitigating losses. It's averted a depression, a Great Depression, number two, but we did have a great recession. And it's still a depressing economy.

JEFFREY BROWN: All right.

And, William Conerly, our last minute, what -- how do you see this -- government stimulus programs affecting now and in the future?

WILLIAM CONERLY: Yes.

I think that the government stimulus had a smaller effect than a lot of people are thinking. It gets a lot of attention. And there's a lot of flag-waving around it, but monetary policy from the Federal Reserve has been very, very positive, but there's a long time lag.

I think that has been kicking in. And, you know, most of the stimulus dollars had not been spent yet by the end of the third quarter. It's weighted more heavily to 2010.

The real question in my mind going forward is, when does the Fed start tightening, and are they going to overtighten? And I'm a little bit nervous about the prospect of maybe we go into another cycle in 2011 or 2012.

JEFFREY BROWN: All right. We will leave it there.

William Conerly, Shirley Leung, and Diane Swonk, thank you, all three.

SHIRLEY LEUNG: Thank you.

JIM LEHRER: Our Patchwork Nation project is tracking signs of improvement in 12 communities around the country. That's on our Web site, NewsHour.PBS.org.