Many economic indicators are good – except employment

Talk of a full economic recovery is on hold for the time being as we are now fully entrenched into a cycle of growth and better efficiencies but the corresponding increase in jobs has not followed. By definition we are seeing the occurrence of a ‘jobless recovery’ which while not ideal is becoming the rather normal result following a prolonged period of recession. In fact from an economics standpoint over half of the most recent recessions have followed the same pattern and can be labeled the same way, jobless recoveries were also the outcome following the recessions of the early 1990’s and early 2000’s. It is a situation that can be interpreted as the glass being half full – the simple facts are that while GDP is improving there is a defined lag in new jobs being added to the changed economic landscape. The good news is jobs do follow but typically not for another 6-18 months.

The reasons for the prevailing climate are varied, companies have developed new efficiencies during the recession which allows for a return to prior productivity with fewer staff, the second factor isn’t as visible but just as important – confidence. Another factor that has hampered recoveries in the US the last twenty years has been population growth being more rapid than the increase in quality jobs, in times of economic growth new job growth matches population trends but during a contracting economy the lack of ‘good jobs’ is all too apparent. A further impact of the last 3 years has been an estimated (and remarkable) 18% of Americans changing jobs that bring a salary drop of more than 10% from their original salary (as in those who lost a job and then gained a new one). This situation creates a logjam of unemployment where so much of the workforce is trying to move back into higher paying jobs competing with those who don’t even have a job.

That’s the bad news – but compared with a year ago the overall indicators are positive and should be looked at. A report released by Bloomberg today gives cause for optimism and a call for patience, while the overall picture is not idyllic it does at least make sense. Amongst the positive news for Q4 2009:

• Employee output grew by 6.2% – the biggest growth in six years
• Overall employee efficiencies for the end of 2009 rose at their most rapid pace since 1966
• Productivity rose by 2.9% while labour costs fell by 0.9% (an almost unheard of combination)
• The economy grew by by 5.7% in Q4 – at the same time employers shed 208,000 jobs

Many of these combined numbers won’t continue as the metrics are essentially impossible to maintain. A growing economy with a rise in factory orders and productivity will reach a point where no more can be asked of the workforce. The improvements to workforce efficiencies will reach a point of capacity as no more can be drawn from a workforce that is already stretched. I’d imagine that by Q3 2010 that point of saturation will be reached upon which we should see a steady (but slow) decrease in the numbers of unemployed coupled with an overall increase in payroll at last. So long as no panic unsettles the stock market or financial sector it should be expected. It’s been a bumpy ride but the path ahead does look better.

(Statistics for this article courtesy of Bloomberg Business)