Jobs tell the story of how long the recovery will be

The labor market perhaps best illuminates just how long the recovery will likely be. Despite modest growth in 2010, employment in the Southeast remained well below prerecession levels. The region added 81,300 nonfarm jobs on net last year, according to BLS figures, but these added jobs replaced only about 1 in 20 jobs lost during the recession and the early stages of the recovery. From December 2007 through the end of 2009, roughly 1.6 million, or 8.1 percent, of the region's jobs vanished.

Chart: Unemployment Rate in the Southeast

Slow job growth is not unusual after a recession. Labor markets are historically among the last to benefit from a rebound. Yet in this cycle, southeastern employment has recovered even more slowly than it did after any of the past four recessions, according to Atlanta Fed research and BLS data. At the end of 2010, the combined unemployment rate in the region was 10.5 percent, compared to 9.2 percent in the rest of the country excluding the Southeast. What is more, during 2010, the region's jobless rate improved by only a third as much as it did in the rest of the country. Not only was the region's jobless rate well above the national average throughout 2010, but also it was the Southeast's highest since 1983, according to the Atlanta Fed.

Florida suffered the worst job losses of any state in the country during the recession. Employment is coming back gradually in the state. By the end of 2010, the Sunshine State had regained 5 percent of the 920,200 jobs it lost between March 2007 and the end of 2009. As 2010 ended, Georgia was still shedding jobs. The Southeast's second-most populous state posted in December its worst nonfarm employment level since before the recession began.

Unemployment remained stubbornly high despite modest economic growth. This disconnect prompted extensive discussion and research, notably into the causes of an alarming increase in long-term unemployment. (See sidebar on the problem of long-term unemployment.) In December, 44.3 percent of unemployed workers nationally reported that they had been out of work for more than six months, nearly double the highest level following the 2001 recession, according to the BLS.

Clearly, slimmed-down companies were generally not rehiring in 2010. Atlanta Fed research and business contacts made it clear that many firms that pared their workforce during the recession were slow to add to payrolls even as business improved. A surge in productivity probably explains some of that. In several speeches across the Southeast, Atlanta Fed President Dennis Lockhart pointed out that output per worker in the U.S. business sector in early 2010 increased at more than double the long-run average. Productivity gains of that magnitude aren't likely to last. So eventually, Lockhart said, businesses will probably need to hire again, but they will likely do so only gradually.

The housing market also weighs heavily on the labor market, especially in the Southeast, where residential construction supported at least hundreds of thousands of jobs earlier in the decade. In 2010, southeastern housing markets made halting progress. During the first half of the year, the market benefited from the federal housing tax credit stimulus. Existing home sales continued year-over-year gains, and new home sales rose temporarily in the spring. The upturn in demand boosted home prices early in the year.

Good news did not last. The market dropped sharply when the stimulus expired at the end of April. Furthermore, the number of foreclosures remained high, and the inventory of distressed homes—mostly short sales and foreclosures—continued to weigh down prices across the region.

Labor markets are historically among the last to benefit from a rebound.