Employment - 2011

We know, you’ve already begun to doze off. Don’t. Stick with us. You need to know this stuff; then come 2011, tell the kids or spouse it’s how you had it figured all along.

We noted in an earlier sketch that the error to the consensus forecast for near term economic activity is to the weak side, our view. That is, there will be more vigor than expected in 2011, particularly more vigor in payrolls.


Let’s take a look at where we are now. The Fed recently surveyed all 12 of its districts so we don’t have to. The Fed compiles this survey ahead of each FOMC meeting.

Here’s what the districts reported: Overall economic activity continued to rise, but at a modest pace. Manufacturing continued to expand with production and new orders rising in most districts. Consumer activity was up modestly; even travel and tourism picked up a bit. (Did we not just read discretionary activity - travel and tourism? I think we did!)

Vehicle sales were up a tad. Housing remained weak with most districts reporting sales below year ago levels. Same for commercial construction.

Prices of goods and services - mostly stable. Wage pressures were minimal. No surprise as we know the labor market is weak (thanks, BO) which naturally dampens wage pressures. But the weak labor market does not reflect weak employers. Read on.

Reported company earnings for Q3 are blowing through expectations, both consumer and industrial related (ex, MacDonald’s & Caterpillar). And it’s not just due to cost cutting; it’s also due to increased sales. Granted, much of the sales improvement is offshore, esp emerging markets, but fine, we’ll take that too.

Companies are hugely more efficient now than they were two years ago. But the changes they have made will in fact reduce the number of employees needed to get the job done. Why not? There are too many BO-imposed burdens attached.

We read from this week’s UK Telegraph, “This lack of investment in new jobs isn't because companies lack the resources. Corporate America, as in the UK, has an embarrassment of riches on its collective balance sheet. But having come through the crisis lean and mean, chief executives intend to stay that way.”

The Telegraph continues, “When it comes to investing, the risk and reward equation is skewed away from creating jobs and more towards buying rival companies to boost growth (while often cutting jobs) or buying back a company's own equity to enhance shareholders' returns and management's own share-based incentive schemes. After all, according to corporate America, what's the point of starting a business to create jobs when it will be weighed down by health care costs, taxes and red tape?” Thanks again BO.

And this is exactly where Nov/2 comes in. Given the seers are correct (recall Harry Truman holding up the copy of the Chicago Trib to know that they might not be) then we will have a great wave of fiscal conservatism sweep the country. Efforts to slash perhaps $100 bln from the federal budget will commence in January. And personal initiative will be celebrated as 1) tax cuts are maintained and 2) business tax cuts initiated. Next, the health heist will be repealed. Cap & trade, comatose anyway, will be sent to sleep with the fishes. Employer and consumer alike will be cheered by all of this.

In short, already healthy employers will see the risk of government interference, the risk of sudden change to their operating theater, sharply reduced. Jobs will follow.


Robert Craven