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Leo Hindery, Jr. Headshot

'Crystal Ball' on the Economy and Labor

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The nation went through 'Back-to-School' shopping back in August and September with barely an uptick in the economy.

We went through the longer 2009 holiday shopping season with only a slight increase in purchases over the dismal 2008 level -- in December, retail sales actually fell 0.3%.

All the while on the jobs front, we remained and remain mired in a jobless recovery, with nearly 20% real unemployment and 30 million women and men either unemployed or chronically underemployed, of whom 10 million have been out of work more than half a year. These millions of effectively unemployed workers now know firsthand the sharp and painful difference between the real unemployment rate and the official rate (at 10% nearly as high as at any time since the Great Depression, but still only half the effective real rate).

And so, Virginia, there was no Santa Claus for the economy in 2009 and there probably won't be in 2010 either. In fact, Santa probably won't show up again until 2011 -- and then only if we start to get our reemployment act together.

So what specifically happens in the near term to the economy? To the labor force?

To start, I believe that despite all the recent job growth in the government sector because of stimulus spending and hiring related to the Census, the overall official unemployment rate will still rise even further, from 10% to around 10.8%. Of course, this means that the real unemployment rate -- the only rate that matters -- will increase from today's level of 19% to around 21%.

Even more foreboding for the economy, there is the very real prospect that we could soon start to see what's called "blowback".

Blowback (what some call "feedback") is what happens when you either don't really fix the conditions that led to the recession in the first place, or don't substantially mitigate the economic hardships that resulted from it.

In our case, we may soon be confronting both, because:

• the real unemployment rate will likely remain around 20% for months to come;

• we continue to have the greatest income inequality in the country since 1928, which portends very little uplift to the economy from the actions of the bottom 90% of Americans;

• the massive devastation in commercial real estate values, which is only just now becoming evident, will ripple through the economy in extremely negative ways that may even exceed the housing crisis; and

• even today's fully employed workers, who are working on average only 33 hours a week, need to see an effective economic "lift" of around 17% just to get back to their own pre-recession levels.

If the economy does indeed blow back on itself, then there will be a second housing market collapse, with as many as half of the nation's homes worth little more than their mortgages. There will be continued stagnation in all-important new home and auto sales. And there will be only moderate corporate investing and new spending, even though this is another very important impetus to fulsome economic recovery.

Some refer to blowback as a W-shaped economic recovery -- but it is not that at all, since in a W, you go down, then up and then down again. Blowback is more like the long right-hand side of an L -- first sharply down and then stagnation because there is no fundamental improvement in the critical underlying conditions.

As for the nation's labor force and its vitality, what will be most concerning is if, as I suspect, we have essentially embedded high real unemployment in the economy into the medium term. Thus, my employment forecast for the next five to ten years, assuming we don't take significant actions, is sadly pretty simple: more of the same large-scale unemployment and underemployment; meager wage gains and worsening working conditions for the employed; and little or no job security for anyone.

This ugly labor forecast is possible because this recession's almost unprecedented fury has already significantly accelerated the adverse labor force trends that we began to see all the way back in the '80s. In order to appreciate the breadth of the problems ahead, it helps to look at the relevant aspects of today's labor force:

The number of Americans working part-time-of-necessity -- that is, because full-time work is unavailable -- has doubled since the recession of 2007 began, to 9.2 million.

25% of America's workers now have jobs that are not fulltime and in one way or another are "non-standard", which includes independent contractors, temps, part-timers and freelancers. From their employers, 75% of these non-standard workers have no access to a retirement plan of any sort and 60% have no health insurance.

Pay for production and nonsupervisory workers -- now 80% or so of the private workforce -- is 9% lower than it was in 1973, adjusted for inflation.

Unions represent less than 8% of private-sector workers, compared to 36% in 1953.

And in just the last ten years, total manufacturing jobs have declined 33%, while jobs in health care have increased 30%, in leisure & hospitality 12%, and in government around 10%.

I've written at length about the several steps that the Executive and Congress need to take in order to jumpstart an all-of-economy jobs-based economic recovery that sustains. All of these steps deserve attention, but given where we are today in the economy -- or, better said, where we aren't in terms of fixing it -- we need to particularly focus on the four steps that could most immediately and meaningfully create lots of jobs.

First, we need a very large-scale infrastructure investment program that includes a new National Infrastructure Bank, incentives for private funding of public infrastructure, a multi-year green transportation program funded through an increase in gasoline taxes, and targeted federal government spending in improving energy efficiency, especially building retrofits.

Second, we need youth employment programs of the sort FDR had in his New Deal, in our time, however, for the estimated 3 to 5 million out-of-school youth who already can't find work and for the 6.4 million young people who will graduate from high school or college in just five months time.

Third, we need a buy-domestic federal government procurement program that mirrors the programs of our major trading partners and lasts just as long. We should call our program the "U.S. Domestic Investment Act", for that's what it would be: domestic investment in job creation and retention.

And fourth, by whatever means available, we need to put a stop to China's currency manipulation -- which economist Peter Morici has determined creates a staggering 25% illegal subsidy on Chinese exports -- and to its other illegal subsidies and unfair trade practices.

Why these particular initiatives?

It was Franklin Roosevelt who showed us 80 years ago that monies thoughtfully spent on infrastructure and on youth employment create jobs almost instantly. He also showed us that these dollars then circulate widely throughout the general domestic economy, creating even more jobs -- in today's economy, probably on average two other jobs for each initial job we create.

The need to have our own buy-domestic program is quite simply because no other initiative would do more to quickly resuscitate U.S. employment, especially manufacturing employment. It would also materially reduce our nation's ongoing massive trade deficit. Even though federal government procurement makes up about 20% of the American economy, the U.S. is almost alone among the developed nations and China in not having a significant buy-domestic program.

And the reason for the China recommendation is simple: we can never get back even to pre-recession employment levels if we don't put a stop to China's illegal and unfair trade practices. China is consistently responsible for about 70% of America's trade deficit in manufactured goods, and this is quite literally crushing the life out of our nation's non-services employment.

President Obama and his administration, in an all-of-government manner, need to focus on new jobs on Main Street, millions of them, as they have this last year focused on resuscitating (and not even reforming) Wall Street and on health care reform. It's past time to argue which should have come first -- the time for jobs is now.

Leo Hindery, Jr. chairs the US Economy/Smart Globalization Initiative at the New America Foundation. He is the former chief executive of AT&T Broadband and other major media and telecom companies.