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Blackstone’s Wien: Unemployment Will Never Dip Below 7 Percent Again

Thursday, 14 Jul 2011 07:52 AM

The economy is on the path to recovery and better times await, but unemployment figures will never drop below 7 percent like in the past, says Byron Wien, vice chairman of Blackstone Advisory Partners.

Before the Great Recession, unemployment figures would fall to around 5 percent during boom times and then hit 10 percent during contractions.

Now that the economy is improving from the worst economic meltdown since the Great Depression, businesses are moving forward again, but companies are doing so with fewer workers.

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Byron Wien
(Blackstone file photo)
"This is the first cycle where companies have used capital instead of labor during the recovery," Wien tells CNBC.

"And the capital spending is good, but it is being used not to build new plants where you hire workers to fill them. It's been used to buy equipment that allows you to get goods and services out the door with fewer workers," he says.

"That's the big change, and that's probably not going to be altered. Usually when we have 5 percent unemployment in a boom and it goes to 10 percent in a recession and then it goes back to 5 percent. It's not going back to 5 percent. We may not see 5 percent again. We may see 7 percent or some number in the sevens at best."

The economy added 18,000 jobs in June, which brought the unemployment rate up to 9.2 percent from 9.1 percent in May, according to government data.

The economy needs to start adding 150,000 jobs each month at the very least in order for unemployment rates to really fall, Wien says.

Still, the economy is on the mend.

"There are three parts of the economy that are doing well. Trade is doing well because the dollar is cheap, capital spending is doing extremely well, and I think the consumers — the 90 percent of the people who are working--are spending again," says Wien, who called the bottom for U.S. stocks in 2010 while failing to predict the size of the ensuing rally,

"Earnings are still coming through very favorably, I think the budget ceiling will be raised and the budget will be cut, the European credit crisis will be resolved."

The government has hit its $14.3 trillion debt ceiling, and unless Congress gives the administration approval to lift it by Aug. 2, the government may be unable to pay its bills and default.

Both sides remain at odds over issues such as raising taxes and spending cuts.

Treasury Secretary Tim Geithner has said he wants Republicans and Democrats to cut a deal well before the Aug. 2 deadline.

"We know we don't have a lot of time, and we want to wrap up the broad outlines of the agreement by the end of this week, certainly by the end of next week," says Geithner, according to CNNMoney, adding he believes his political opponents are aware of the gravity of defaulting.

"Default is not an option, failure is not an option, and they understand that — Speaker (John) Boehner and Minority Leader (Mitch) McConnell — absolutely understand we need to move in advance of the deadline on Aug. 2," Geithner says.

"What's at stake is whether we can put together a long-term fiscal plan that's good for the economy."

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The economy is on the path to recovery and better times await, butunemployment figures will never drop below 7 percent like in the past,says Byron Wien, vice chairman of Blackstone Advisory Partners. Before the Great Recession, unemployment figures would fall to around...
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Thursday, 14 Jul 2011 07:52 AM
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