The jobs report for July was a bit of a downer, with only 162,000 jobs created for the month, compared to the 185,000 analysts had predicted. Additionally, workweeks for all workers decreased by 0.1 hour while hourly wages dipped by $0.02. In spite of all these depressing statistics, the unemployment rate managed to drop to 7.4% from June's 7.6%, due to a slight decrease in the number of unemployed people.
It's been nearly four years since the unemployment rate edged over the 7% mark, and we've made great strides since it hit 10% a little less than a year later. Still, that metric hasn't budged much since last September, when it finally dropped below 8% to 7.8%.
It's hard to believe that, between December 2005 and November 2007, the jobless rate was lower than 5%. Will we ever again be able to attain anything close to that percentage? Unfortunately, I believe the answer to that question is a resounding "no" -- and here's why.
A burst bubble can't be reinflated
For most of the 2000s, housing was the economy's engine. The heyday of housing created two out of every five jobs between 2001 and 2005, a time during which the U.S. enjoyed an unemployment rate between 4% and 6%. In 2006 and 2007, the jobless rate averaged a mere 4.6%.
Then, of course, it all came crashing down. The overheated housing sector, stoked by free and easy mortgage lending, suddenly stalled as subprime mortgages began self-destructing and housing values fell. The unemployment rate jumped from 6.5% in October 2008 to 10% just one year later.
That sounds bad enough, but a CNNMoney article from the summer of 2010 puts an even finer point on the issue, noting that nearly 8 million jobs were destroyed by the Great Recession. Worse yet, most of those job losses were believed to be permanent.
This makes sense, since the housing boom was pushed to unsustainable levels with help from banks and other subprime mortgage lenders. It also makes sense that these two sectors suffered some of the worst job losses, the effects of which are still being felt today.
Banks reduced the bloat
It took a lot of workers to prop up the housing bubble, and job losses in housing construction reached 1 million within two years. Similarly, the financial sector lost nearly a half-million jobs by the spring of 2012, and those losses are still piling on.
Big banks have been trimming expenses like crazy since the crisis, and job cuts are an integral part of this downsizing. Citigroup (NYSE:C) shed over 96,000 positions between 2007 and 2011, and CEO Michael Corbat has pledged to prune even more this year.
Despite pulling in $53 billion in profit over the past three years, JPMorgan Chase (NYSE:JPM) has plans to lay off 17,000 workers by the end of next year. In 2011, Bank of America (NYSE:BAC), announced its "Project New BAC" -- a reorganization plan that includes reducing its work force by 30,000.
Housing jobs: gone for good?
Similarly, home construction jobs haven't bounced back, despite the budding housing recovery. Some homebuilders say they can't find qualified help, claiming that many of the 3.4 million former construction workers have retrained for new jobs. But the number of those working in the field is virtually unchanged from 2011, when approximately 2 million were active in housing construction.
Yet, in recovering markets such as California, construction jobs actually decreased in May -- despite the fact that builders can't seem to keep up with demand. In an environment where trained workers are scarce, it makes little sense to thin the ranks when a rebound appears to be in the works.
All indicators point to higher long-term unemployment
Even if homebuilders could find all the workers they want, I think it's highly unlikely that employment in the construction field would ever again reach the lofty heights of the housing boom. Even Fannie Mae estimates that only a little more than 400,000 construction jobs will be added to the economy by 2016, bringing the total to approximately 2.5 million. Those million jobs lost after the bubble burst are gone for good.
The same is true for banking, where cost-cutting continues to feature job cuts. Add to the mix the debilitating loss of domestic manufacturing jobs -- and the distressing fact that 8 out of 10 of the jobs formerly filled by those without a college degree disappeared since the crisis -- and prospects for lower unemployment look dim, indeed.
The members of the Federal Open Market Committee currently hold the view that the long-term unemployment rate will stabilize somewhere between 5.2% and 6%. Considering how high the unemployment rate has stayed since the crash, I can't see that metric ever getting below 6% again. Absent another bubble, the jobs lost after the housing crash will never be regained -- particularly since many of them were unsustainable anyway, the result of a market that artificially pumped up demand.
Likewise, there seems no real mechanism for replacing most of those lost jobs since so many manufacturing jobs have also gone away. The kind of economy that supports an unemployment rate of 6% or less doesn't appear to exist anymore, a reality that both workers and investors need to get used to.