Why Employment Could Get a Boost

Friday, January 14, 2011

Much has been made about the latest jobs report. Does that report set the stage for a lackluster 2011? No. In fact, the forecast looks good – perhaps even rosy.

Employment meets business needs

I recently wrote “James C. Cooper’s ‘Business Outlook’ Lives!” (December 28, 2010). Cooper’s latest article illustrates his analytical skill. He takes the latest employment data, blends in additional information and produces a well-reasoned conclusion. In this case he explains why we should expect employment improvement in 2011 – along with (and because of) improving economic conditions: “Consumer Spending, Business Certainty Lift Jobs Outlook” (The Fiscal Times, January 10, 2011)

His analysis includes these important points:

“The big restraint on hiring in 2010 was widespread uncertainty in the business community regarding everything from economic growth to taxes to election-year politics. Now, the fog is lifting. Chief executives surveyed by the Business Roundtable in the fourth quarter were the most optimistic in five years….”

“Non-financial corporations headed into the new year with a record $1.9 trillion in cash. Half the CFOs say they will continue to accumulate cash, but half say they will begin to put their money to work, to increase capital spending and make acquisitions.”

Leading indicators continue their lengthy period of improvement

Frequently, too much is made from one economic indicator’s latest reading. In late 2009, there was much worry about the 10% unemployment rate.

I tackled the concerns in three articles:

The key points then (and now) are (1) the unemployment rate is a lagging indicator and (2) the leading indicators show a steadily improving employment picture. The graphs below update those in the previous articles.

We could be near a tipping point

Note that manufacturing hours have fully returned to “normal” and that overtime manufacturing hours are closing in. What that means is that production is nearing capacity for the current workforce. Yes, I know that economists say there is excess capacity, but that is looking only at production facilities. People are needed to run those, and many were previously laid off.

Hence, with the current workforce working full time and putting in normal overtime, companies are left with one option to expand production: hire!

Growth and confidence are accelerants

Now bring back in James Cooper’s thoughts about the importance of corporate wealth, cash flow, confidence and expansion plans. That is quite a heady mixture, and it could accelerate employment gains further.

So… It looks like the employment picture for 2011 will be better than those tepid projections we see. In fact, if growth takes hold, employment could ramp up significantly.

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