When will the great American job creation machine kick into high gear?

By Money Matters Editors

Economists, market analysts, and public policy professionals are hinting at data that will show an end to the U.S. recession sometime in Q3/Q4, if a recession bottom hasn’t already occurred yet.

But the real end to the recession - at least in terms of aggregate demand and the typical person’s daily life - concerns when the U.S. job market will turnaround. And that begs the obvious question: when can investors and Americans in general count on an end to the large job losses that have characterized this pronounced recession?



ADP: companies’ cutbacks decline

One preview of job market conditions in the period ahead is the ADP National Employment Report, and in August it showed a private-sector job loss of 298,000 jobs. July’s private-sector job loss total was also revised 11,000 lower to a loss of 360,000 jobs from the previously-released 371,000. Economists follow the ADP report because, although it contains just private-sector data, it usually tracks fairly closely the U.S. Labor Department’s monthly non-farm payroll report – one of most important economic data points in the free world.

And what can one conclude from the recent ADP data? It shows that job lay-offs are declining, they’re trending lower, but they’re still at a high level. Regarding the upcoming U.S. Labor Department report, economists expect the U.S. economy to have shed 200,000 jobs in August.

The bottom line for investors? Employment, usually a lag indicator, is still dramatically too low to drive high GDP growth, and that’s a major reason why many economists are forecasting a mild recovery, with Q3/Q4 GDP growth well below what the United States would register during a typical recovery.

Why is job growth important? It’s very hard for corporate revenue and earnings to increase at an adequate rate without job growth. Further, the annual increase in adults eligible for work puts pressure on the U.S. economy to continually create jobs: the economy must create 100,000 jobs pre month, just to prevent the unemployment rate from rising. (The U.S.'s unemployment rate is currently 9.4 percent.) How big is the task for economy, then? It’s huge: given that 6.8 million jobs have been lost during the recession (not including the August data), the U.S. economy would have to create 200,000 jobs per month for about 5.5 years, just to replace the jobs lost - an enormous task.

Given the restructuring occurring in the U.S. economy, the United States must identify/create new, value-added industrial/tech sectors - in health care services, information technology, infrastructure, education, renewable energy, high-end/tech-based manufacturing, and biotech - to make up for the industrial output and jobs lost to globalization. Those new sectors must appear for the United States to remain a strong, versatile, and prosperous nation with ample economic opportunities, and sustainable GDP growth.