As the recession eases, companies are cutting fewer jobs. Yet they remain reluctant to hire, leaving potentially millions of people without any financial aid long after their unemployment benefits run out.
That grim picture was reinforced Thursday by the latest government report on jobless benefits. The number of first-time claims — a proxy for the pace of layoffs — remained below the peak levels of the spring. At the same time, though, the total number of people receiving unemployment aid topped 9.1 million.
“We are left with a bifurcated job market, with fewer newer claimants but a rising tide of long-term unemployed,” said Cary Leahey, an economist at Decision Economics. “Some will exhaust all their benefits and be at wit’s end to make ends meet.”
The National Employment Law Project, an advocacy group, projects that 540,000 people will use up their unemployment benefits by the end of September. It estimates 1.5 million will have run out by year’s end.
Those benefits include up to 53 weeks of emergency extended coverage, on top of the standard 26 weeks of aid typically provided by most states.
The loss of all unemployment aid for so many jobless Americans could lead to calls for further benefits extensions. Congress first provided federal emergency benefits last year. Those benefits were extended in February by the Obama administration’s stimulus package.
Steven Ridenhour, 40, is receiving extended unemployment benefits after having been laid off nine months ago from a Chrysler plant in suburban St. Louis. But that extra assistance is scheduled to run out this fall.
He is using a one-time buyout payment from Chrysler to pay his mortgage and support his wife and four children. The pretax payment of $140,000 amounts to one year of his salary.
Ridenhour said he wants to work with his hands. But jobs are scarce.
“There are so many people I know around St. Louis that are where I’m at,” he said. “The (job) market is pretty well flooded right now.”
Even if the economy begins to recover this summer, as some economists expect, growth will likely be anemic, and unemployment will continue to rise. Most private economists and the Federal Reserve expect the unemployment rate to top 10 percent by year-end. The rate for June hit 9.5 percent, a 26-year high.
Job seekers are trying to pounce on any potential opportunity. J.C. Penney Co. Inc. opened a new store in New York City on Thursday, creating 500 new positions. Company officials told The Associated Press that they received 15,000 applications — an average of 30 for each opening.
Economists say job creation will be weak even if the economy begins to recover this year. The reasons include:
— Huge slack in the labor market. Besides the 14.7 million Americans officially counted as unemployed, nearly 9 million people are working part-time but would prefer full-time work, the Labor Department says. Those people will escalate the competition for any new jobs.
— The average work week is at a record low. That means companies could squeeze more work from their existing employees before hiring new ones.
— Economic growth will be weak. A rebound is widely expected in the second half of this year in part because industries like housing and autos will inevitably recover from abysmally low production levels. Consumer demand, which is necessary for a sustained recovery, is likely to remain subdued.
Mark Vitner, senior economist at Wells Fargo, said nearly all companies that are reporting healthy second-quarter profits are benefiting from cost cuts, not increased sales. But they’ll need to see sales rebound before they’ll hire, he said.
— Layoffs are more likely to be permanent. Unemployment in past recessions included manufacturing and construction workers who were laid off temporarily when business slowed, Leahey noted. Many of those workers knew they would be rehired as soon as the economy recovered.
This time, many jobs at auto makers and other factories are being cut permanently. Workers on temporary layoff made up about 22 percent of the unemployed in 1982, when the economy last suffered a steep recession, according to Labor Department data. They represent only about 11 percent of the unemployed now.
“If you are a blue collar worker laid off in the last year or so, you may never get another job like your old one,” Leahey said.
And it could take several years for the job market to regain its health. Some Federal Reserve policymakers project the unemployment rate could remain above 9 percent into 2011. And some economists say the jobless rate won’t return to a historically “normal” rate of roughly 5 percent until 2013 or 2014.
“We’ve got a long, tough road ahead of us in terms of unemployment,” Vitner said.
In the 1991 and 2001 recessions, the unemployment rate didn’t peak until roughly 18 months after the recessions ended. Vitner and many other economists expect a similar lag this time.
The rise last week in first-time claims for unemployment benefits followed two straight weeks of sharp drops, largely because automakers didn’t lay off as many workers as expected in early July. General Motors and Chrysler temporarily shut down many of their plants earlier than usual this year, in May and June, after filing for bankruptcy protection and restructuring their companies.
Still, weekly claims remain far above the 300,000 to 350,000 that analysts say is consistent with a healthy economy. New claims last fell below 300,000 in early 2007. The lowest level this year was 488,000 for the week that ended Jan. 3.
The number of people continuing to receive jobless benefits, meanwhile, fell by a more-than-expected 88,000 to 6.2 million in the week that ended July 11, the lowest level since mid-April. That total doesn’t include those on the extended-benefits programs. They pushed the figure to 9.1 million for the week that ended July 4, the most recent period for which numbers are available.
AP Business Writers Anne D’Innocenzio in New York and Christopher Leonard in St. Louis contributed to this report.
Copyright 2009 The Associated Press.