Bleak Horizon For Jobs

Top Fed Official Warns Jobs Will Be Scarce As 'Paradigm Shift' Slows Hiring: "There is an alternative explanation regarding the events of last year, though, that bodes poorly for rapid employment gains going forward," she said in her prepared remarks. "According to this view, last year's large increase in productivity is here to stay. In that case, we won't see a quick drop in unemployment and may be in for a jobless recovery akin to those in the early 1990s and early 2000s. This is closer to my view and broadly consistent with my forecast," she said. She continued:

According to this perspective, the recession has forced businesses to reexamine just about everything they do with an eye toward restraining costs and boosting efficiency. Strapped by tight credit and plummeting sales, businesses have overhauled the way they manage supply chains, inventory, production practices, and staffing. Stores don't order merchandise unless they think they can sell it right away. Manufacturers and builders don't produce unless they have buyers lined up.

My business contacts describe this as a paradigm shift and they believe it's permanent. This process of implementing new efficiency gains may have only begun and we may be in store for further efficiency improvements and high productivity growth for some time. If so, the rate of job creation will be frustratingly slow.