7 reasons the job market is about to take off!

Here's hope for those who've lost jobs or worry they will. A better economy is unfolding right now, and the Great American Jobs Machine is about to kick into high gear.

Unemployed? Worried about your job security? Scared by the negative stuff you read in the papers and hear on television? Most of these concerns reflect the recent past.

But I'm here to tell you there's strong reason to believe the Great American Jobs Machine is about to crank up yet again. In fact, there are seven strong reasons:

Inventories are unusually low, so factories need to increase production just to meet demand.

And after several adverse shocks -- corporate scandals, Wall Street scandals, foreign wars -- it seems the worst is over.

This list doesn't even include the most frequently cited reason for believing in an employment recovery: Jobs always surge in the wake of recession.

Sizeable employment losses during the recent recession, followed by additional declines during the tepid recovery (and in the most-recent reports), have critics arguing that the economy is mismanaged and in trouble. Even worse, they argue that we are losing our best jobs in manufacturing and services to third-world countries, which will undermine our economy further.

Happily, these conclusions are based on little more than hot air and an incompetent or cavalier reading (or both) of the economy’s behavior. Much better economic conditions are unfolding right now, and these will lead to solid job growth in the immediate future.

The U.S. economy lapsed into a mild recession early in 2001, as excesses in technology and the stock market came to a crashing end. Massive investment in the 1990s led to enormous excess capacity, as companies bought into the ubiquitous spread of the Internet and the infrastructure necessary to support it. Y2K played a role, too, as alarmist computer experts warned of air-traffic-control jams, inoperable elevators and other scary scenarios in the run-up to the year 2000. The frenzied business environment colored the eyes of stock market investors, who were duped into buying every loony new IPO (with or without sensible business plan) conjured up by Wall Street.

The egregious mistakes of the technology sector bubbled over surprisingly little into the rest of the economy, apocalyptic forecasts notwithstanding. When tech went over the edge of the cliff, not much else went with it. Few others made such profound mistakes.

Consumers lost wealth as the stock market went down, but personal income growth remained solid, so spending held up very nicely. Housing was supported by low mortgage rates. The economy suffered a mild recession, but nothing overly disturbing, especially not after a record-long 10 years of economic expansion. By late summer of 2001, the economy seemed primed for a recovery.

The shocking terrorist attacks of Sept. 11, 2001 nearly claimed the economy as another victim. Travel plummeted overnight, throwing the airline, hotel, cruise and other leisure businesses into a tailspin. As consumers watched rescue efforts on television, spending fell and business activity slowed. A second leg down in the recession seemed entirely plausible, and too many “analysts” jumped on the bandwagon to forecast a severe economic downturn. It didn’t happen.

Policymakers stepped right up to the plate to help the economy. President Bush pushed for a tax cut and increased government spending for the cleanup and for national defense. The Federal Reserve reduced interest rates repeatedly to stimulate spending.

These actions would have ensured an economic recovery fairly quickly, except for yet another series of untimely adverse shocks that held back economic activity. The economy had to absorb:

Widely heralded accounting frauds at Adelphia (ADELQ, news, msgs), Enron (ENRNQ, news, msgs), Worldcom (WCOEQ, news, msgs), Tyco (TYC, news, msgs) and others.

Wall Street scandals over allocating IPO shares to stock analysts who recommended companies for investments that they privately called four-letter words.

The threat, then the actuality of a war in Iraq. It is really just amazing that the economy did not relapse into recession. Instead, it muddled along, growing slowly. Oddly enough, it is that slow growth that caused the recent job losses and spawned the controversy.

Productivity, the two-edged sword Economists love productivity, which is how living standards improve and why we Americans enjoy the world’s highest standard of living. As companies become more productive, the same workforce can be used to produce more goods. That’s the good news.

The bad news is that the market may not want all that incremental output. For example, if productivity advances at a 5% annual rate, but demand rises at a 2% annual rate, business must downsize to get rid of excess capacity of 3% every single year. In that case, a company will be forced to cut back on employment, so that 2% more output is produced, but with 3% fewer workers.

Every single mature manufacturing industry has gone through exactly this process. For example, the domestic auto industry produced 13.0 million cars and trucks at an annual rate in the second quarter of 2003, vs. 9.2 million in 1967. But this substantial rise in output was accomplished despite a nearly unchanged workforce of roughly 875,000 in both periods. At its peak in the 1950s, more than 1 million people were employed in motor-vehicle manufacturing. Even today, it is estimated that the global auto industry is operating at less than 80% of capacity. There just aren’t enough buyers to purchase all the cars that Detroit (and foreign companies) can manufacture.

I’m not describing a new phenomenon, but rather a longtime process. At one time, a majority of our population was employed in agriculture. But productivity on the farm kept on rising, even as our growing population stuck to its regimen of three meals a day. (We ate more and became more overweight than ever, but we still couldn't keep pace with the growth in food production.) So, economics forced millions of people off the farm, and that trend continues to this day. Now, a mere 2% of the population works in agriculture, and that’s sufficient to feed our entire population plus enough to make food one of our nation’s largest export products.

The same thing is happening in manufacturing. We are producing more every year, but we need ever fewer workers to make those products. So, fewer workers are employed in manufacturing, now a mere 11.3% of total payroll employment vs. 31.3% in 1948. Meantime, we find ourselves supplied with everything from cars, appliances, furniture, and clothing to a degree never before experienced in history. When I was a child, many families, but not everyone, had one car, one black-and-white TV, a couple of radios, and sometimes a washer and dryer. (And I’m not that old, at least I don’t think so.) Now, we have all those along with dishwashers, microwaves, color TVs in multiple rooms, air conditioning, DVDs, VCRs, PCs, cell phones and an alphabet soup of other gadgets. And it doesn’t stop.

The fate of the workers But what happens to the displaced workers? Some unfortunate ones retire, often involuntarily, at an early age. Among the hardest hit are those who are roughly 55 years old -- too young to retire, yet old enough to be unwilling to learn a new field. Others who could and were willing to retool went into industries that were growing, most notably service companies, including PC hardware repair, software servicing, retailing, cell phone sales, or numerous other tech and non-tech fields. This shifting of labor out of declining industries into growing ones has happened repeatedly in economic history, and it’s not about to stop now.

Narrowly, this is exactly what has happened to the overall economy over the past two years. Economic growth since the third quarter of 2001, measured by real GDP, has averaged just 2.6% at an annual rate. However, nonfarm productivity averaged 4.8% over the same period. Because the economy grew more slowly than productivity, job losses continued at a modest pace. Demand needed to grow faster than productivity. Faster growth would have occurred, in my judgment, if not for all those negative shocks mentioned above. Are these hits going to continue? Americans are getting wary -- and weary.

Next year happens to be a presidential election year. So it is not surprising that the party out of power, the Democratic Party, has been very critical of the administration for its failure to produce jobs. Unsurprisingly, Democrats have looked only at the lack of job growth and have been intolerant of the reasons. Even worse, in the name of keeping the deficit down, they did everything they could to obstruct the tax cut Bush proposed to stimulate the economy. This politics-as-usual approach will backfire very badly, in my judgment. I anticipate that the economy, a negative for the administration right now, will be a significant positive for the president’s re-election hopes by this time next year. Those Democrats, who don’t seem able to look very far ahead, will end up being hoisted on their own petard. What I find surprising is that the Democrats' own economic advisers haven’t discouraged the party's politicians from setting this trap for themselves. Then again, if the Republicans had been out of power, they likely would have made the same mistake.

Why it will get better, and soon Why aren’t we doomed to continue to suffer job losses? The negative shocks hurting the economy have for the most part ceased, recent news of questionable mutual fund and hedge fund dealings notwithstanding. Various accounting, Wall Street and other miscreants have been arrested, and such issues don't have the "legs" they used to. The war in Iraq ended fairly quickly and far better than many expected, even if the post-war situation remains messier than hoped. The stock market has rebounded, and people are wealthier. Interest rates remain exceptionally low and continue to stimulate activity. And sizeable tax cuts and rising government spending will further reinforce expansionary pressures.

These are just the primary forces working to restore faster growth. As a result of them, layoffs are already down, even as spending is rising far more strongly. GDP will likely grow by roughly 4 1/2% in the second half of this year, perhaps by more. Within a few more months, talk about a weak economy will be no more common than talk about deflation. And the Great American Jobs Machine will resume creating new opportunities for everyone.

Where can you look for evidence of the next round of the great American jobs machine? Start with initial unemployment claims. Although it climbed back above 400,000 this week, watch for it to turn out numbers that are below 400,000 soon. That will be a key sign of reduced layoffs.

Also, early each month, watch for the report on new payroll employment. That’s the actual measure of net jobs in the nation. Once that resumes growth, it will quickly gain momentum. Indirectly, watch assorted measures of consumer spending, like monthly retail sales or weekly chain-store sales. Gains of 0.4% monthly (equivalent to 5% annually) would be an unambiguous indication of stronger growth. More subtly, listen to whether the media mentions any surprisingly good economic news. That’s significant, since good news is rarely news at all.

Dr. Charles Lieberman is the Chief Investment Officer of Advisors Financial Center L.L.C., an investment advisory firm based in Suffern, New York. He is the former chief economist for Chase Securities. You can read his full bio here and e-mail him at chuck@advisorscenter.com.

Let's all hope that this man's predictions come to pass and that our heroic President is re-elected. I have faith in this economist. I hope he doesn't disappoint me.

I have faith in this economist. I hope he doesn't disappoint me.

You, me, Bush, GOP, America included...!!! ;)

I think the jobs market will be getinng better by the month starting with this one. But this guy fails to understand that the media will repeat over and over what the Democrat nominee says about the economy. We could add 300,000 jobs per month and see that rate shrink to under 5% and have a GDP of 5-to 6%+ and the Rats will say we have the worst economy in the last 50 years.

It worked for them in 1992. Why not 12 years later?

4 posted on 09/11/2003 7:58:14 PM PDT by The South Texan (The Democrat Party and the leftist (ABCCBSNBCCNN NYLA TIMES)media are a criminal enterprise!)

This economist sounds right on track to me.

With real growth in GDP and jobs it won't matter how the Dems or media try to spin it.

Remember were at 6.1% unemployment now, and things look to improve. Reagan won his 49 state landslide with 7.4% unemployment.

Yes, but Reagan was running against the guy who presided over (and caused?) that unemployment. Bush will be on defense in 2004 - not offense like Reagan - unless this comes to pass.

The economic stimulus promised by Dubya's tax cuts will be negated by his globalist trade policies and expansion of federal welfare programs. Instead of trickling down and rippling through our domestic economy, the money hemorrhages OUT of our domestic economy in the form of record trade deficits and increased overseas investment. To compound this problem, Dubya's unprecedented Budget Deficits merely increases the National Debt and burden on U.S taxpayers. A burden that is greatly amplified with his expansion of Medicare entitlements.

The Bush Administration is an irresponsible economic disaster that will collapse us into Third World poverty.

"Yes, but Reagan was running against the guy who presided over (and caused?) that unemployment. Bush will be on defense in 2004 - not offense like Reagan - unless this comes to pass."

Reagan was running against Mondale for re-election in 1984. Unemployment actually peaked about the middle of Reagan's first term around 10%. It began to fall in 1983 and he was overwhelmingly re-elected.

Bush is in better shape than many think.

unless the cycle of corporate white collar jobs offshoring is stopped, this won't happen. what people don't seem to understand is that corporations are investing and spending money to expand, in India and China.

I honestly hope this economist, Charles Lieberman, is correct.
However, since he never even mentions the impact of offshoring, outsourcing, foreign visa workers, illegals, the devalued yuan, the huge trade and budget deficits, I'm having a difficult time believing him.

Because Bush has 100% support from his Party.

Because Bush is 100% to 1000% a better politician than his father.

Because Bush has opponents who have 0% of Clinton's skills.

The Bush Administration is an irresponsible economic disaster that will collapse us into Third World poverty.

You may be wrong, but you are never in doubt, are you?

What a cold comment on the part of the author: some of those aged fifty-five and up will be forced into early retirement. Guess the author isn't facing downsizing himself. His job sounds secure spewing out articles like this.

Early retirement: That very well could be YOUR future, folks, when you reach age fifty and above. Take it from someone who is facing early retirement (I'm running for my life). Companies know it works--get rid of the the older workers and save money. And the experts step in and provide justification from "experts" who say it's necessary, it's effective.

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