January 28, 2010 / 8:21 PM / 8 years ago

Obama's jobs focus offers no fast fix

WASHINGTON (Reuters) - Even with President Barack Obama's attention firmly focused on jobs, it will be years before U.S. unemployment is back to pre-recession levels.

With 15.3 million people unemployed and thousands more so discouraged they've given up looking for work and are no longer counted in the unemployment rolls, elevating jobs to the top of the agenda was a political imperative, particularly with November congressional elections looming.

In his State of the Union address on Wednesday, Obama backed up his pledge to make jobs the number one focus in 2010 with proposals to free up $30 billion in small business lending and offer tax incentives for hiring.

Both make sense, economists say. Neither will work fast.

Small businesses are the biggest source of job creation and hold the key to reducing unemployment, so funneling money their way is a smart approach. The problem is, even though the economy has resumed growing, confidence is in short supply, leaving these companies reluctant to hire, economists say.

Washington has added to uncertainty with a drawn-out debate on healthcare reform and what is shaping up to be a 2010 fight over tax policy and how best to ease the debt burden.

"Businesses don't thrive in uncertainty," said Kyle Hannon, vice president of public policy at the Elkhart, Indiana, Chamber of Commerce.

Obama mentioned Elkhart in Wednesday's speech and has visited it twice in his first year in office, holding it up as an example of a small Midwestern industrial city that has suffered with unemployment but was fighting its way back to growth. Elkhart was hit hard when the recession and high gasoline prices crushed demand for recreational vehicles, its major industry.

"I've talked to several companies around here that are really busy," Hannon said. "Orders are picking up, but they're not sure it's going to last so they're hesitant to hire people. They need confidence. Is this going to be a lasting recovery or is it going to be a troubled one?"

That was a common sentiment in Reuters interviews with business owners around the country, and it bodes ill for Obama's economic agenda and Congress members' campaign hopes.

"I don't know if I am looking at an upswing or am I just looking at a flat prairie and somewhere there is a precipice out there and it will all fall over the edge," said Art Daniel, head of AR Daniel Construction in the Dallas suburb of Cedar Hill. The company employs about 45 people.

Jim Pettit, owner of A-One Signs & Graphics in Elkhart, said demand was starting to improve after a devastating year. His business fell by 50 percent in 2009, and he is down to six employees from 10.

"I'm still hanging in there by my fingertips," said Pettit, who described himself as an optimist who firmly believes the economy will come back. Yet he does not want to risk hiring workers now only to find the recovery was a false dawn, possibly forcing him to let them go.

"One or two orders isn't going to do it," he said. "I want to see on the horizon a reliable growth pattern and then I would consider adding to the work force."

GETTING RECONNECTED

Economists estimate it will take at least four years of above-average economic growth to get the jobless rate back to its pre-recession level of around 5 percent.

The economy must generate more than 100,000 new jobs a month to make a dent in the unemployment rate. In 2004-2005, for instance, when unemployment drifted lower after the so-called "jobless recovery," monthly payroll gains were often in the 200,000 to 300,000 range as it was falling.

Just getting unemployment down to 9 percent by November's elections looks ambitious considering that economists polled by Reuters expect economic growth of 2.7 percent this year, near the average performance in the decade before the recession.

For small businesses, the labor pain has been particularly acute. Companies with fewer than 50 employees have lost 2.7 million jobs since the start of the recession in December 2007, according to data from the ADP Employment Report.

The National Federation of Independent Business's monthly small-business survey suggests that trend won't improve any time soon. Over the next three months, 15 percent of small businesses plan to cut jobs, and only 8 percent intend to create new ones.

"The job generating machine remains in reverse," NFIB said.

Brian Bethune, an economist with IHS Global Insight in Lexington, Massachusetts, said Obama's proposal to direct $30 billion to small-business lending, if properly structured, could produce a significant benefit.

By putting the money into community banks in the form of capital -- the same thing Washington did with the largest banks in 2008 to shore them up -- it could generate $300 billion in lending. Banks routinely lend out $10 for each $1 in capital.

But Bethune said Obama has a long way to go to win back the confidence of business owners, many of whom are independent voters who helped him win the presidency in 2008 and are now discouraged by the direction of policy.

Healthcare reform ranks high on the list of worries for many business owners because they aren't sure how much it will cost them. Taxes are close behind. Although Obama has pledged not to raise taxes on those making less than $250,000, there are questions about how that will apply to businesses.

The hundreds of billions of dollars spent on Wall Street bailouts have also left many small businesses feeling resentful, Bethune said.

"Somehow he's going to have to reverse some of the bad feelings that have been created that the administration is kind of up in the clouds and not really connected with Main Street," Bethune said. "The president has to play catch-up and do it in time so that there is not a midterm (election) disaster."

Additional reporting by Ed Stoddard in Dallas, Carey Gillam in Kansas City and Tim Gaynor in Phoenix; editing by Philip Barbara

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