ATLANTA – James Ensley of Rocky Face, Ga., took a $10,000-a-year job last month as a school-bus driver after almost two years of unemployment benefits ran out. While thats a third of his prior pay as a warehouse manager, the father of two says hes content.
It feels great to go to work instead of having somebody tell you I cant help you, said Ensley, 51, whose former employer went bankrupt in the wake of the U.S. housing slump. I miss my old job, but it is not coming back so I have to get over it.
A surge in long-term U.S. unemployment, which Federal Reserve Chairman Ben Bernanke has cited as evidence of a far from normal labor market, finally is abating. Thats good news for American companies, which are taking advantage of a pool of 5.2 million people whose career hardships have made them eager to return to work. Most of the re-employed have had to settle for reduced pay, allowing businesses to keep labor costs low while boosting profits amid sluggish sales gains following the deepest recession since the 1930s.
The cost of labor is very cheap, said James Paulsen, who helps oversee about $325 billion as chief investment strategist at Wells Capital Management in Minneapolis. Nominal wage gains are very anemic, so these costs are down and will likely stay down for a while longer.
The number of Americans out of work for 27 weeks or longer in July was 1.5 million fewer than the April 2010 peak, Labor Department data show. The total represented 41 percent of all jobless, the lowest since 2009.
Workers have become less selective after benefits of as much as 23 months expire. Fifty-four percent of the long-tenured unemployed have had to settle for lower wages to secure another job, according to a Labor Department report released Aug. 24. One in three said their compensation was at least 20 percent below what they made at previous employers.
This has helped to increase corporate efficiency and earnings. Seventy-one percent of companies in the Standard & Poors 500 Index reported profits that exceeded the consensus analysts estimates during the most recent quarter, even though 59 percent fell short of sales estimates, according to data compiled by Bloomberg.
Low labor costs will continue to boost results, said Charles Lieberman, chief investment officer at Advisors Capital Management. Companies in the S&P 500 probably will earn more than $110 a share next year, which could boost the index to around 1,700 from 1,404.94 on Tuesday. The median estimate of 11 analysts in data compiled by Bloomberg for EPS in 2013 is $106.75.
Inflation near the Feds 2 percent target will give the policy-making Federal Open Market Committee flexibility to stimulate growth when it meets Wednesday and Thursday , said Lieberman, former head of monetary analysis at the Federal Reserve Bank of New York, now in Hasbrouck Heights, N.J. The central banks preferred price gauge, which excludes food and fuel, rose 1.6 percent in July from a year earlier.
The Fed has kept the target for its benchmark federal funds rate near zero since December 2008, and two rounds of bond purchases have helped swell its balance sheet to a record of almost $3 trillion.
Despite the decline in the share of long-term unemployed, it remains about double what it should be in a healthy job market, said Mark Zandi, Moodys Analytics chief economist in West Chester, Pa.
Bernanke displayed a chart of duration as part of a March speech to the National Association for Business Economics, saying the persistently high rate of long-term unemployment we have seen over the past three years or so is especially concerning.
During his Aug. 31 presentation at the annual Kansas City Fed conference in Jackson Hole, Wyo., he emphasized the enormous suffering and waste of human talent produced by the stagnation of the labor market, saying it will wreak structural damage on our economy that could last for many years.
The average length of joblessness fell to 39 weeks in July, a 15-month low, Labor Department figures show. Thats about twice the level of the 1981-82 recession, when unemployment reached 10.8 percent, compared with a high of 10 percent in October 2009.
I do find it encouraging that at least the number has trended down, though its still very, very high, Atlanta Fed President Dennis Lockhart told reporters Aug. 21. Research from the San Francisco Fed indicates that people whove been displaced can overcome doubts about their abilities and dont face a lot of stigma from hiring managers, Lockhart said.
Being fired or laid off makes a job search increasingly tough for about the first six to eight months, said Rob Valletta, research adviser at the San Francisco Fed, who has studied the issue. After that, employment prospects do not vary that much based on unemployment duration.