Why is the job market recovery so slow?
We know why real estate values remain low: Potential homebuyers can’t commit to buying a house when they’re out of work or afraid they might get laid off. And then there are workers whose salary increases have been frozen for a couple of years now, or those with a personal debt-to-income ratio that prevents them from qualifying for a new mortgage. There are even people who are gainfully employed but can’t wait to quit their job as soon as some better ones come on to the market. On that front, Pew Research reports that 49% of adults ages 18 to 34 say they have taken a job they didn’t want because of economic conditions.1 Simply stated, there are lots of reasons few people want to buy a home now regardless of how low mortgage rates go or how many tax incentives are offered.
But the job market – what’s its excuse? We’ve heard so much about how companies have reigned in expenses, restructured debt, and produced healthy balance sheets with cash flow. So why aren’t they willing to expand and start hiring?
Last year, the McKinsey Global Institute projected the U.S. would experience five years of “jobless recovery” before getting on its feet again. Five years. That kind of makes the phrase “jobless recovery” a bit of an oxymoron, doesn’t it? How can the economy truly recover without jobs? Everything depends on it – consumer spending, the residential real estate market, business growth and expansion and, subsequently, market returns.
In an article published in the March 2012 issue of the Harvard Business Review, the author points out that:
As in a classic market failure, individual firms are not shouldering the true costs of their actions. They benefit from minimizing their own labor costs while society picks up the tab for their lack of investment in human capital: slow economic growth, unemployment, welfare, and so on. Then there’s the tension between short- and long-term objectives: Activities that make sense for individual firms at one end of the value chain right now (for instance, shipping jobs overseas and cutting costs wherever possible) can backfire at the other end. Down the road, the middle class may not be robust enough to create demand, and the workforce may not be trained well enough to drive innovation.
[CLICK HERE to read, “An economy that works: Job creation and America's future,” at McKinsey and Company, June 2011.]
[CLICK HERE to read, “A Jobs Compact for America's Future,” at Harvard Business Review, March 2012.]
For the United States to return to full employment, McKinsey predicts the US economy will need to create 21 million jobs by 2020. Fortunately, there is good news. Certain industries are projected to expand over the next few years, and these are where we can expect job growth.
According to Industry Leaders Magazine, about one-third of job hiring companies expect to add new jobs in the next six months. Sectors slated for job growth include the healthcare, finance, information technology, and skilled labor positions in construction and manufacturing industries.
According to Simply Hired’s 2012 U.S. Employment Outlook, metropolitan areas with the highest increases in new jobs include Raleigh/Durham, Birmingham, Norfolk/Newport News, Louisville, Sacramento and Oklahoma City.
[CLICK HERE to read “Some Big Companies Creating New Jobs in 2012: Which Companies?” at Industry Leaders Magazine; December 16, 2011.]
[CLICK HERE to read the report, “U.S. Employment Outlook, January 2012,” from SimplyHired.com, January, 2012.]
Please give us a call if you’d like to discuss incorporating a “Follow the Jobs” theme into your investment portfolio.
1 Pew Research Center, “Young, Underemployed and Optimistic,” February 9, 2012.