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True relief will come when the unemployment rate starts to fall. That will probably take another quarter or two, as job growth typically lags GDP expansion. So far this has been a jobless recovery. Since the recession started in March 2001, the U.S. economy has shed 2.7 million jobs. The Administration would like to hit a target set by some private-sector forecasters to create 200,000 jobs a month, but it has been wary of making its own forecasts. In recent years spikes in the growth rate have faded. Economists expect this year's fourth quarter to cool to a still healthy 4%. To sustain long-term growth, the economy needs what's known as a virtuous cycle, in which increases in demand for goods and services are such that businesses have to expand capacity, hire more workers and produce more goods, all of which generates additional profits and demand for more workers.
For now, the economy's improvement is based partly on the painful work-force reductions of recent years. Companies have become more productive through downsizing and squeezing higher output from workers. Efficiency is terrific, of course, but it won't necessarily translate into job growth. Diane Swonk, chief economist at Bank One in Chicago, says the unemployment rate needs to fall to around 4.5% before we will "feel" the expansion. For now, says Sung Won Sohn, chief economist at Wells Fargo, "all of us, both business and consumers, are being squeezed." Here are some reasons why for many of us it doesn't feel as if we are living in boom times:
--THE MEDICAL MIGRAINE No matter whether you are running a business, toiling in an office or looking for a job, you are probably feeling the health-care sting. Workers notice it in the form of higher payroll deductions and larger co-pays for prescription drugs. HMOs, which typically used to cover hospital stays in full, are adding deductibles of about $240 a visit.
In aerospace, a cyclical industry that's in a downturn, Boeing's 92,000 nonunionized employees will for the first time face payroll deductions (up to $105 a month) for health insurance. (Deals with Boeing's 58,000 unionized workers are negotiated separately.) Boeing's health costs, says spokesman Ken Mercer, are rising 15% annually and are projected to hit $2.5 billion by 2005. Boeing doesn't expect a turnaround in the airline industry until at least that year, meaning that health-care costs will probably grow faster than revenues.