Why It’s All About Jobs Right Now

“Calling the Trend” Column, by George Leong, B.Comm.

The economy continues to show encouraging signs, but, for the growth to pick up, we need to see marked improvement in both the jobs and housing markets. This has been my contention for quite some time. Without the confidence of holding your job, you may be hesitant to spend. The Durable Goods Orders for January was a stronger-than-expected three percent versus the estimate of 1.5%, and the 1.9% in December. The concern is that the number excluding transportation fell 0.6%, well below the one-percent estimate and the two percent in December. The reading indicates that consumers are generally not rushing out to spend on big-ticket items other than autos, which offered major incentives to buy. Until we see a pick-up in big-ticket items, economic renewal may be slow.

At this juncture, despite the massive amount spent on economic stimulus, we have yet to see net job creation. Yes, fewer jobs have been cut as a result of the stimulus, but the bottom line is that there are still a whopping 8.8 million Americans unemployed and about 59% of the unemployed have been out of a job for over 15 weeks, according to the Labor Department. These are not metrics if you are looking for a job. The Senate is currently looking at extending the length of time a person can receive unemployment insurance. This is important given the critical nature of the jobs market and the reality of finding a decent job.

It’s true that there was a better-than-expected non-farm jobs report for February, in which 36,000 jobs were lost versus the consensus estimate calling for the loss of 68,000 jobs. The unemployment rate held at 9.7% versus the 9.8% estimate. The news is encouraging, but again we need to see net positive gains at some point soon. This remains the concern. For job creation to pick up, the economy must strengthen to entice companies to hire.

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The hiring trend is improving, but remains flat. About 73% of companies are not expected to change their hiring plans in the second quarter, according to a survey by Manpower Inc.

Consumer spending, which drives about 70% of economic growth in the country, continues to be lackluster, and this cannot be good. The key Conference Board Consumer Confidence report for February was weaker than expected at 46.0, well below the 55.9 reading in January and the lowest reading since April 2009. The soft reading is negative, as it suggests that consumers continue to be nervous and unsure about spending, which will impact GDP and the strength of the economic recovery.

Moreover, the University of Michigan’s consumer sentiment reading also fell in February, further pointing to continued fragility in sentiment and its impact on spending.

Bottom line: we need to see job creation, but, without economic renewal, companies will continue to be hesitant when thinking of adding staff. Not until we see net positive growth in jobs can we expect the economic growth to be sustainable.