What Job Seekers Can Expect in 2010

Likely events in Washington and in the economy


President Obama summed up the precarious nature of today's economy and job market in a recent interview with ABC's Jake Tapper. "Now that we've rescued the economy and the economy is growing," Obama said, "businesses aren't yet hiring." Indeed, it's strange to see a "rescued" economy in which nearly 16 million unemployed face a paltry 2.5 million openings each month. Employers have not stopped cutting jobs, and the unemployment rate soared to 10.2 percent last month.

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With 2010 just around the corner, everyone is crossing their fingers for a better year. Here are a few things you can expect:

Washington will keep trying to create jobs: The gross domestic product climbed 3.5 percent in the third quarter, while payrolls continued to fall. This is no doubt proof of the rule that employment is a lagging indicator. But some economists see it as particularly lagging at this point. The Conference Board's employment trends index, which takes into account eight labor market indicators, rose in October. It was the second consecutive month of growth. (September's rise had been the first since January 2008.) The index numbers suggest job losses would end by early next year, and "that's a very optimistic statement compared to the consensus at this point," says Gad Levanon, senior economist at the Conference Board.

When the private sector isn't creating jobs, government tends to step in by lowering taxes, creating incentives, or spending to spur hiring. President Obama signed a bill providing another federally funded unemployment extension Friday and said he would likely do more: "My economic team is looking at ideas such as additional investments in our aging roads and bridges, incentives to encourage families and businesses to make buildings more energy-efficient, additional tax cuts for businesses to create jobs, additional steps to increase the flow of credit to small businesses, and an aggressive agenda to promote exports and help American manufacturers sell their products around the world." The White House has stopped short of calling these tools "stimulus." On Capitol Hill, Senate Majority Leader Harry Reid told colleagues Tuesday that Senate Democrats would take up a bill aimed at job creation, but did not elaborate on its details, according to the Hill.

The deficit will begin to weigh on Washington's efforts to create jobs: While the president laid out a lengthy menu of possible job-creation tools, he is receiving no small amount of pressure to begin tackling the deficit. Federal Reserve Chairman Ben Bernanke is the most powerful voice among many pushing Obama in that direction. The president says that he is beginning to look at the fiscal 2011 budget and that he understands the nation's long-term debt is a problem. While unemployment is clearly a nearer-term problem, deficit concerns will weigh on each decision. Countries that buy American debt could begin to demand higher returns. To pay higher yields on debt, the government would be forced to raise interest rates, a situation that could endanger the fledgling recovery.

Unemployment will peak next year: By and large, economists do not believe the unemployment rate will tick downward in November or December. Instead, they expect a peak sometime next year. Even the Congressional Budget Office is anticipating an average unemployment rate of 10.2 percent in 2010 and about a percentage point lower in 2011.

Unemployment will likely fall by the end of next year—or even toward the middle of next year—but even the most bullish economists do not anticipate major drops in the unemployment rate. Brian Wesbury and Robert Stein of First Trust Advisors are expecting a drop of a full percentage point. The Conference Board's Levanon says he expects the unemployment rate to remain elevated over the next several years.

Productivity will, eventually, help boost employment: Productivity grew at a 9.5 percent annual rate last quarter. Americans were working hard. Labor productivity is measured by dividing output by hours worked. In the third quarter, output rose by 4 percent while the number of hours worked fell by 5 percent. This can make people nervous, because employers are doing more with less and would seem to have no incentive to increase their payrolls. But productivity numbers during downturns "do all sorts of strange things," says Dean Baker, codirector of the Center for Economic and Policy Research. And they can look very good after employers cut payrolls.