Economists fear millions of jobs lost in Great Recession will never come back

WASHINGTON -- Even with an economic revival, many U.S. jobs lost during the recession may be gone forever and a weak employment market could linger for years, some economists say.

That could add up to a "new normal" of higher joblessness and lower standards of living for many Americans, they say.

Economists and policymakers say the job-creating dynamics of previous recoveries can't be counted on now because:

The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth anytime soon.

The job market is caught in a vicious circle: Without more jobs, consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.

Many small and midsize businesses are still struggling to obtain bank loans, impeding their expansion plans and constraining overall economic growth.

Higher-income households are spending less because of big losses on their homes, retirement plans and other investments.

Lower-income households are cutting back because they can't borrow as they once did.

That the recovery in jobs will be long and drawn out is something economists and policymakers basically agree on, even as their proposals for remedies vary widely.

Retrenching businesses will be slow in hiring back or replacing workers they laid off. Many of the 7.2 million jobs the economy has shed since the recession began in December 2007 may never come back.

"This Great Recession is an inflection point for the economy in many respects. I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future," said Mark Zandi, chief economist and co-founder of Moody's Economy.com.

"The collective psyche has changed as a result of what we've been through. And we're going to be different as a result," said Zandi, who formerly advised Sen. John McCain, R-Ariz., and now is consulted by Democrats in the administration and in Congress.

Even before the recession, many jobs had vanished or been shipped overseas amid a general decline of U.S. manufacturing. The severest downturn since the Depression has accelerated the process.

Many economists believe the recession reversed course in the recently ended third quarter, and they predict modest growth in the nation's gross domestic product over the next few years. Yet the national unemployment rate is currently at a 26-year high of 9.8 percent -- and likely to top 10 percent soon and stay there awhile.

"Many factors are pushing against a quick recovery," said Heidi Shierholz, an economist at the labor-oriented Economic Policy Institute. "Things will come back. But it's going to take a long time. I think we will likely see elevated unemployment at least until 2014."

At best, many economists see an economic recovery without a return to moderate unemployment. At worst, they suggest the fragile recovery could lose steam and drag the economy back under for a double-dip recession.

President Barack Obama and congressional Democrats are having a hard time agreeing on how to keep the recovery going and help millions of unemployed workers -- short of another round of stimulus spending amid rising voter alarm over soaring federal deficits.

So far, they've been unable to win even a three-month extension of unemployment insurance for people in states with jobless rates above 8.5 percent.