November 4, 2015 / 6:08 AM / 2 years ago

Fed faces patchwork recovery despite near-normal labor markets

Workers box jars of pasta sauce at a plant run by Chelten House Products in Bridgeport, New Jersey July 27, 2015. REUTERS/Jonathan Spicer

ALEXANDER CITY, Ala (Reuters) - As gleaming new factories turn out Airbus (AIR.PA) aircraft and Hyundai (005380.KS) cars in Alabama’s urban centers, this small town that once was home to Russell Athletics shows the dilemma now faced by U.S. policymakers.

Economic recovery has spread wide, with 34 states reaching new employment highs this year and thousands of counties now close to unemployment rates of the boom years earlier this decade, according to a Reuters analysis of federal data.

The U.S. Federal Reserve has played a central role in engineering that recovery and has become progressively less worried about the nation’s job market, interpreting the slowdown in payrolls’ growth as a sign of near-full employment.

But Russell’s abandoned headquarters in Alexander City stands as a reminder of forces the Fed’s massive easy money campaign is ill-equipped to confront. What is needed now is more akin to hand-to-hand combat, state and local officials say.

What Alexander City could use, for example, is a $4 million rail spur to connect its industrial parks with the nearby rail line, or more state help in paying the grading and utility connection costs to entice would-be investors, says former mayor Don McClellan.

Or perhaps, he suggests, programs to boost the community college’s retraining of mid-career workers among thousands who lost jobs as Russell’s operations wound down for good after a 2006 takeover by Berkshire Hathaway(BRKa.N).

“It is much harder to recruit here,” says McClellan, now regional development chief.

“When the state lands white collar jobs, it is in the metro areas.”

As 2016 presidential candidates from billionaire Donald Trump to Bernie Sanders square off over the economy, the debate is not just about the number of jobs. The contenders and Fed officials alike also fret about sluggish wage growth, low productivity and the quality of positions being created.

Yet Fed officials, who discuss whether to raise rates for the first time in a decade, recognize that for all their power they may lack the tools to address such concerns.

“An interest rate hike is not going to affect job training in Macon County, Georgia,” said David Wiczer, an economist at the St. Louis Fed who studies labor market issues.

HEALING SCARS AND DARK SPOTS

U.S. state and county statistics show the spread of recovery, allaying some of the fears about permanent scars from the crisis. But they also show some persistent spots of high unemployment.

Among more than 800 large counties surveyed annually by the U.S. Census, nearly 700 had by last year virtually returned to 2007 unemployment rates - a group that has most likely grown given a steady climb in payrolls this year. (Graphic: tmsnrt.rs/1Wm3hcB)

Some states, however, continue to struggle, whether with legacies of uneven development and racial segregation, or longer-term changes in the U.S. and global economies. Alabama and nine other states , accounting for just over 16 percent of national economic output both have yet to return to pre-crisis employment levels and have above-average unemployment rates.(Graphic: tmsnrt.rs/1Wm32y7)

In West Virginia, coal mine closures have weighed on employment for more than three decades; in Illinois and Pennsylvania the decline of heavy manufacturing has left its mark. In Alabama, the loss of textile jobs has swelled unemployment rolls, while jobless rates in a dozen or so heavily African American “Black Belt” counties remain in the teens.

As of September, the state had about 57,000 fewer jobs than in 2007, a 3 percent shortfall. Its labor force is down too and its adult population growing slower than the country as a whole.

Alexander City is a case in point.

That this town of less than 15,000 ended up with an 85,000 square foot (7,900 square meter)Fortune 500 headquarters, with an atrium waterfall and apartments for visiting executives, was an accident of history.

What later became Russell Athletics began as a small sewing operation that rose to national prominence making team-branded sports jerseys. The company began shifting jobs overseas in the late 1990s and closed its headquarters in 2010, leaving only a token presence.

“When Russell started downsizing. ..we did not have big brother to take care of us anymore,” says McClellan.

To fill that void one needs well-targeted investments that would not just create jobs in the near-term, but improve productivity in the long run, local officials say.

Yet, unlike the Fed, which used its virtually unlimited firepower to churn out trillions of dollars in monetary stimulus, local, state and federal governments lack such leeway.

Political battles over the nation’s debt ceiling hamper federal spending while local authorities face hard budget constraints.

A budget shortfall made Alabama dip into its education fund this year to pay other expenses, while financial summaries show the state’s $1.3 billion transportation budget consumed mostly with maintaining existing roads and bridges.

That leaves small-bore initiatives, such as $11.5 million in training, small business support, investment incentives and other projects announced last month for the “Black Belt” counties.

Further to the north, in Alexander City, McClellan said the region was expanding community college programs to retrain older workers, and has recruited auto parts suppliers for the Hyundai plant in Montgomery and a Kia Motors Corp. (000270.KS) factory just across the Georgia state line.

Spencer Lucker, spokesman for the Delta Regional Authority, a small federal rural development agency for the Mississippi Delta region, says Alabama’s problems are typical - with pockets of high unemployment where most new jobs are created by small business start-ups.

“It is a general pattern across most of our states,” Lucker says. “What we have been focused on, is building out pockets of entrepreneurship (and) it is a slow process.”

Reporting by Howard Schneider; Editing by David Chance and Tomasz Janowski

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