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Jobs Coming Back, but Not from Overseas

Tuesday, December 11th, 2012
By for Profit Confidential

Jobs Coming Back, but Not from OverseasI was reading that Apple Inc. (NASDAQ/AAPL) would produce at least one of its computer products in the United States. Great news for job seekers, but Apple will continue to manufacture most of its products outside of the U.S. in low-cost global manufacturing regions, such as China, Asia, Mexico, Eastern Europe, and Latin America. The reality is that companies have to control costs, especially given the slower revenue growth amid corporate America.

There are 22.5 million or so Americans looking for work who are either unemployed or underemployed; about 12 million are fully unemployed. These are not good jobs numbers, as many of these people are taking minimum-wage jobs just to fight off the creditors and put food on the table. The poor jobs climate is also hindering the eurozone, which you can read more about in “Why Spain’s in for Some Hurt.”

Job growth is showing signs of wanting to edge higher, as the unemployment rate made a surprise decline to 7.7% in November with 146,000 workers managing to find full-time work, which was well above Briefing.com’s estimate of 80,000 jobs.

And while I’m pleasantly surprised with the drop in the unemployment rate and jobs numbers, the decline in the unemployment rate can be attributed to fewer people looking for work, according to the Labor Department. During Hurricane Sandy, for example, many did not search for work. We not only need better jobs numbers, but we also need stronger skilled-jobs numbers.

The official unemployment rate is 7.7%, but I wonder about the validity of the jobs numbers as far as an accurate reflection of the nation’s jobs situation. My thoughts are that the unofficial unemployment rate is much higher than the reported rate. The reality is that there are likely millions of Americans that have dropped out of the labor force, tired of pounding the pavement to get shut out of jobs or working at minimum-wage jobs and losing confidence.

As I have said in a past commentary, the millions of jobs that have vanished from the U.S. landscape to faraway places, such as China, India, Mexico, and Latin America, are gone for good. The average hourly wage of factory workers in southern China is around $2.50 per hour, which is much lower than the comparative unskilled worker in the U.S.

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Similar jobs numbers comparisons are found in the other poor developing countries. Wages are relatively high in this country; not a big incentive for jobs to come back home. Global companies selling mass-market goods require low wages in order to compete on price, while also delivering results to shareholders who demand profits however they’re made.

President Obama has suggested the he would add taxes to U.S. multinational companies that employ cheap labor overseas, but I really don’t think it will have a major effect on the jobs numbers. Companies would rather pay a bit higher taxes than pay more for labor and overall manufacturing costs. Moreover, adding to the overall cost of American manufacturers by slapping on taxes could backfire; it would increase the price of the goods sold to Americans, which is counter-productive and inflationary.

The bottom line is: the jobs numbers environment is vastly different now, given the low-cost production centers situated around the world. The real challenge for President Obama will be to get the economy going, which would in turn drive the jobs numbers.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles