Posted on 09/16/2003 9:03:53 AM PDT by Kay Soze
Extra!
7 reasons the job market is about to take off http://moneycentral.msn.com/content/invest/extra/P60611.asp
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.
By Charles Lieberman
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:
Tax cuts are reinforcing rising consumer income.
Government spending is rising rapidly on defense and homeland security.
Interest rates are still very low, so credit’s cheap.
Corporate investment spending is beginning to recover.
The stock market is rebounding, restoring wealth and confidence.
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.Money 2004. Smarter, faster and easier than ever.
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 history of the recession 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.
A global outbreak of SARS.
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 clieberman@advisorscenter.com.
Yes, but posted 3 times now on FR (including this post).
Who writes this garbage. The country is still littered with victims that invested in the stock market and lost everything, including their butts, their retirements, and homes.
I'd rather juggle chain saws or go to Las Vegas, than put one dime in the stock market.
Victims?
OK, lets call them losers.
The country is still littered with millions of *losers* that invested in the stock market and lost everything, including their butts, their retirements, and homes.
The burning brutal sting left by the stock market, is still very clear in most folks mind.
The stock market is one game I wont be in for a long time, if ever.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.