January 30, 2009 / 9:05 PM / 10 years ago

No chance for leisure in current recession: SF Fed

CHICAGO (Reuters) - Americans staggered by a massive drop in household wealth are not using the current recession to return to school or just enjoy a temporary break from the work grind, as many did in previous downturns, according to the San Francisco Federal Reserve.

“The decline in housing wealth and credit availability is nearly unprecedented,” said economists Mary Daly, Bart Hobijn and Joyce Kwok in the bank’s latest economic newsletter.

As a result, with less income sources to fall back on — from home equity loans to credit cards — labor market participation rates have held up, and even risen for some groups, relative to recessions in the early 1990s and in 2001, the economists said.

“In spite of declining labor market opportunities, more people actually are deciding to pursue them,” they said.

The could cause unemployment rates to exceed forecasts, since many entrants into the workforce might be unable to find jobs, Daly, Hobijn and Kwok said.

The Labor Department, in its monthly employment report on Feb 6, is expected to say the U.S. jobless rate hit 7.5 percent in January for the first time since 1992.

The San Francisco Fed study showed that women aged 25-54 and men and women 55 or older have increased their participation in the workforce since December 2007, while young people (age 20-24) have not withdrawn to the same extent as in the 1990-91 and 2001 recessions.

“The decrease in the supply of credit to students and the decline in housing and financial wealth of their parents likely put pressure on young people to take jobs to pay for their studies,” the economists said.

For the other groups, the massive hit to household wealth from falling home values and savaged equity prices — estimated by San Francisco Fed President Janet Yellen at $10 trillion — kept more Americans in the workforce, up to and beyond their anticipated retirement dates.

“The sensitivity of older workers to stock market performance is not surprising, given the shift over the past 15 years from employer-run, defined benefit (retirement) plans to employee-managed defined contribution plans,” the economists said.

Meanwhile, the massive decline in jobs in the male-dominated construction and manufacturing industries likely forced other family members to enter the labor market, they said.

Women aged 25-54 left the workforce in large numbers during the 2001 recession, but during the current downturn the trend has reversed. In fact, married women in that age group have increased labor market participation since 2005, when the pace of house price appreciation first started to slow.

Editing by Chizu Nomiyama

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