No Celebrations Yet: A Lot More Needs to Happen Before Growth in Jobs Returns

PB020150Lies, Damned Lies, and Statistics

The economy grew 3.5% in the last quarter, signaling a definite end to the recession and the start of a recovery. That’s great news, but look closer and it doesn’t seem that there’s much to celebrate yet. Six-tenths of a percent came from spending by the federal government and another 2.2% from residential construction and auto purchases. The latter number is directly linked to the cash-for-clunkers and the housing credit. That leaves only 0.7% from private industry. This is why we’re not seeing any growth in jobs. The economy is growing because it’s being propped up by taxpayers (and the Central Bank of China) instead of by real growth in GDP. In some places this is known as a ponzi scheme.

The government claimed this past week that the stimulus package has added 650,000 jobs so far. Well, to be precise, “created or saved” that many jobs.

Jobs have been added, but just how many have been “saved” is another matter. There’s no doubt that spending on jobs has a multiplier effect; the money earned by a nurse at a hospital funded by the stimulus may go to saving the job of the mechanic at the auto repair shop where she has her car worked on. But that connection is impossible to make with any degree of precision. When it comes to estimating the number of jobs saved, the White House’s estimate is as good as yours or mine. And it’s likely that any estimate of jobs saved — since there’s no way to dispute it — is an optimistic reading of the numbers. If you’re going to make things up, then why hold back?

The fact remains that the economy has shed an average of 400,000 jobs per month since the beginning of the year. That rate of decline has slowed, and shows signs of continuing to slow even more, but it’s still a net loss. Economists predict that unemployment will start to drop in February, reaching 9.4% by the end of 2010.

Light at the End of the Tunnel

Despite all the bad news, there are signs that the situation will genuinely get better on the jobs front. Numbers from the U.S. Commerce Department show that exports and investment in equipment are both growing aggressively. That will continue since the dollar remains weak and the economies of India and China are showing significant growth. Construction and related industries will also continue to grow, with or without further tax credits, as the inventory of housing is at its lowest point in 30 years.

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2010 is an election year, and nothing focuses the mind of the political class as the prospect of an election that may not go well. So programs like a tax credit for hiring are very likely to pass soon. Unfortunately, having politicians determined to do something can often mean a lot of very bad ideas being implemented. There are already rumblings about a second (or third) stimulus, which will only distort long-term growth prospects further. Recent earnings reports from companies show that plenty of them are back in the black and in a position to make new hires. Lighting a fire under them with a tax credit for new hires is one thing; piling on costs and subsidies for new projects that will undoubtedly result in new taxes on them is another.

Some things are almost always a lie: the check is in the mail; I’ll respect you in the morning; and I’m with the government and I’m here to help. Let’s hope we don’t get reminded of that yet again.

Raghav Singh, director of analytics at Korn Ferry Futurestep, has developed and launched multiple software products and held leadership positions at several major recruiting technology vendors. His career has included work as a consultant on enterprise HR systems and as a recruiting and HRIT leader at several Fortune 500 companies. Opinions expressed here are his own.

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2 Comments on “No Celebrations Yet: A Lot More Needs to Happen Before Growth in Jobs Returns

  1. Sure, it’s great fewer people are jobless by the numbers or that our unemployment rate will one day stabilize. However, that doesn’t mean hiring picks up any time soon.

    First weekly worker hours need to pick up from their all time present low. Second, people reduced to part time from full time moved back to full time status. Third, people laid off be recalled. Fourth, inventory moved or in the corporate sector corporate capital spending on projects be initiated. After all the above comes hiring.

    What we may see is permanent 10% unemployment, more jobs performed by cheap foreign labor here and abroad, and jobs created in certain sectos such as education, government, Green, and healthcare but stagnant in most other sectors.

    Real unemployment and underemployment is closer to 20%. I see a time when we’re no longer losing jobs. I don’t know when the day comes we’re back creating the 150,000-200,000 jobs a month needed to absorb all who want employment back into the work force.

    Bill

  2. Raghav –

    Per usual, great post. A

    s an optimist, turned stoic, now cynic, the difference between what the CBO says (30k jobs) and the White House (up to 1Mil created or saved) is somewhat astounding to someone who passed 3rd grade and the 35 Million who are unemployed, forcably working part time, or who gave up.

    Meanwhile, inflation is alive indeed, the Health Care Plan, having riled up gun-toting seniors, has morphed into
    1990 pages – the golly-gee-whiz 990 additional bound to upset just about everyone, but what the heck, is doesn’t fully kick in till 2013 – so if you believe all the hype about the world ending in 2012, Walmart is now selling caskets for those who believe in Death Panels.

    Back to the economy, 3.2% of the 3.5% was 1 time stimulus stuff, and 90% of economists (and presumably 100% of us recruiters) feel Q4 will be a lot slower.

    Meanwhile, hoping Jesus grades on a curve, and the Mullahs in Iran don’t exercise their Allah given rights to build a nuke.
    Best,
    Jon

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