The great economic question in the year ahead will center on job growth: Will there be any?
The answer will almost certainly be “yes,” but that invokes the inevitable follow-up: How much? In turn, that inspires the equally burning inquiry: “How soon?”
The latter two are the primary unknowns at the moment, and the stakes are high. Much of economic fate now depends on the outcome of job growth, or the lack thereof. We can be reasonably sure that 2010 will witness job creation, but there’s still an unusually high degree of uncertainty as to when this glorious moment will come, how quickly the upward momentum will kick in and how many jobs the trend produces in the business cycle ahead.
What we know so far is that the momentum of job destruction has just about burned out. The ongoing decline in initial jobless claims since March has been hinting at no less. Or as we wrote earlier this month: The bleeding has stopped…almost. But if the labor market’s decline is over, as it seems to be, it’s not yet clear that job creation worthy of the name has arrived. With the jobless rate at 10%, what this country needs is a good five-cent cigar and an unprecedented boom in employment growth. Alas, neither appears imminent.
The more likely scenario is a labor market that crawls back into the black in the months ahead to a degree that’s welcome, given recent history, but far below the pace required to repair the damage wrought since the recession’s start in December 2007. With nonfarm payrolls lighter by more than 7 million over the past two years, replacing those positions over, say, the next 24 months requires job creation in excess of 300,000 every 30 days. By that standard, a hefty dose of optimism is required to see the glass half full. At least we can argue persuasively that the glass has water in it.
Nonetheless, there’s no getting around the fact that the clues in the here and now are flashing mixed messages, at best. That includes the tea leaves from the world of small businesses, the workhorse of job creation in recent history. As BCA Research reminds, small companies are responsible for minting 60% of the new jobs over the past decade. That’s a discouraging statistic if we combine it with the news that the percentage of small firms with job openings continues to bump around at recession lows of 8% this month, unchanged since August, according to a December survey of small firms by the National Federation of Independent Business.
The availability of credit is a critical piece of the hiring pie for small businesses. The ability to expand depends on access to capital, which in turn contributes to the cause of expanding payrolls. But as we recently reported, lending is weak, although the nascent signs of change may be underway. Nonetheless, a revival in lending has yet to make an appearance in the NFIB surveys. Small businesses continue to report that credit conditions in December were virtually unchanged from earlier in the year, which is to say that loan availability is at its lowest in a generation.
Even so, loans by themselves may pack less of a punch this time around, assuming small businesses can tap new lines of capital. As one observer of the small business scene advises, the problem is less about access to credit and more about dim prospects for sales and the heavy hand of government. “Small businesses need the government to think less about lending and more about taxes and regulations,” writes Peter Crabb, a professor of finance and economics at Northwest Nazarene University.
Despite the incentives to think otherwise, a return to labor market growth, if only weakly, may be in the offing. ”There is still a lot of ground to make up in the labor market, but the overall increase in hiring intentions is clearly a positive,” according to Jeff Joerres, chairman and chief executive officer of Manpower, an employment services firm. ”The first quarter is a seasonally slow hiring quarter. To see an increase over the fourth quarter is unusual and seems to indicate increased confidence levels from employers,” he said in a press release from earlier this month.
Which statistics are most likely to give us clues about things to come in the labor market? The average workweek and small business job openings, according to Jason Buol, chief economist/research analyst for the San Diego-based Private Asset Management. In an essay from earlier this month, he explains that the average workweek, which tracks the average number of hours worked by U.S. employees and reported by the U.S. Labor Department, “is an important indicator to watch as we believe employers will first increase the number of hours worked for existing staff before they meaningfully increase the number of workers.”
Meanwhile, keeping an eye on small business job openings is also critical for assessing future labor market trends, notes Buol, a statistic that’s tracked by NFIB. “Monitoring employment developments within the small business sector will be vital for indications of a more general improvement in labor markets.”
As we write, it’s not yet clear that the process of expansion in payrolls is here, or that the magnitude and timing of the anticipated recovery will suffice. But hope springs eternal and with the arrival of a new year comes a fresh round of optimism. Massive government stimulus hasn’t turned the labor market tide, at least not yet. Maybe turning the calendar page to 2010 will do the trick. The next installment on an answer arrives on January 8, when the government releases the December employment report.
Meanwhile, Happy New Year!