First Stocks, then the Economy… Are Jobs Next?
The 2007-2009 global financial crisis, the second most vicious bear market of the last century, caught many off guard and displayed unexpected characteristics when compared to past economic downturns. With the decline being so atypical many are surprised to learn that the road to recovery has been just the opposite, as the economy has mirrored the typical business cycle recovery.
In simplified terms, the sequence of events for a business recovery is first the stock market bottoms (March 2009). Then the recession ends several months later (June/July 2009). Next, the unemployment rate continues higher long after the recession ends, until economic expansion eventually brings job growth. Finally, some time after unemployment peaks, the official end of the recession is announced – long after the stock market has bottomed (see table below). Now the next logical step in the business cycle sequence is to see job growth and a peak in unemployment. So when can we expect more jobs and how many will be created?
When Will Jobs Rebound?
In recent weeks, some positive developments in the labor market have emerged amid the discouraging news about the climbing unemployment rate. In November, the average workweek bounced to 33.2 hours from 33.0, which represents the biggest monthly rise since March 2003. This is a strong precursor for the job market as business owners will typically ask current employees to work more hours prior to hiring new employees. Ned Davis Research estimates that “the rise in the average workweek is roughly the equivalent of creating another 800,000 jobs!”
Another positive indication for the labor market is the recent growth of temporary employees. Temporary employees are the first to be let off in economic downturns and the first to be re-hired during expansions. Through October and November the number of temporary employment positions increased by 44,000 and 52,000 respectively. Initial jobless claims represent yet another indicator for the future prospects of the job market. The initial jobless claims 4-week moving average currently resides around 475,000. Economists believe that job growth will occur should the average continue down below the 400,000 mark.
Even as the unemployment rate continues to rise we are seeing some positive indications within the economy that should lead to job growth in the near future. Former Federal Reserve Chairman Alan Greenspan echoes this sentiment, “We have a level of employment at this stage which is barely adequate to staff the level of output. It seems to me virtually inevitable – if nothing else were to happen – that employment would start to come back fairly quickly.” So we are on the verge of experiencing job growth, but just how much job growth is the important question?
How Many Jobs Will be Created?
At the cost of stating the obvious, jobs are highly correlated with the growth of the economy. Quite simply, the higher the economic growth rate is over the next year, the larger the increase in jobs and decrease in the unemployment rate. A recent blog post on calculatedriskblog.com titled, “Employment and Real GDP” forecasts the expected unemployment rates under varying economic scenarios.
According to their data, “A 3% increase in real GDP (over the next year) would lead to about a 1.5% increase in payroll employment. With approximately 131 million payroll jobs, a 1.5% increase in payroll employment would be just under 2 million jobs over the next year – and the unemployment rate would probably remain close to 10%.” The table below summarizes the wide range of economic and job growth scenarios.
In my opinion the global financial crisis and rapid deterioration of the U.S. economy frightened business managers so terribly that they cut their payrolls more swiftly then they had in the past. Therefore, the payroll growth provided in the model and table could be understated. Nevertheless, this forecast provides us with a general understanding of the relationship between the economy and the labor market. It certainly appears that the U.S. economy is well on its way to creating new jobs and taking its next step in this business cycle recovery.
As always, I look forward to hearing your opinions so please feel free to add a comment below.
–Jim
Thanks for posting the article, was certainly a great read!
I love to see great studies backed by the numbers! Thanks!
“At the cost of stating the obvious, jobs are highly correlated with the growth of the economy”
You stated that “the rise in the average workweek is roughly the equivalent of creating another 800,000 jobs!” great observations and I concur;
But, conversely the (+ or -) lowering and increasing of the average 40 hour week will cause a labor storage as a new policy tool. The 40 hour work week use to be 48 hours and these 40 hours are not etched in stone.
But this is NOT the gist of my reply to the growth of the economy article.
The reason for my reply is how we will create 15 million instant high paying jobs in the USA by establishing 4,004 new public companies wrapped around 364 existing brands and make me, you and a few lucky others instant multimillionaires and billionaires in 2010 by being virtually proactive!
The instant solution for USA growth is derived from a new study caused by observing that 23 countries with the most public companies creates more value for its citizens than do 243 countries with few or no public companies. So it is now clear that the fastest way for countries to create value for its citizens is the simple establishment of an exact number of new public companies around existing brands.
Using the precedent of free employee stock options extended to free customers-stock-options for new public companies we find the means and the 3, 5, 11, 20, and more than 40 times purchase price reasons for how a 14 million ratio of virtual participants buying from 364 new public companies are used to solve not only the 15 million unemployment problem for the USA but the savings problem as well in 2010.
The average public company can create 3,746 new high paying jobs on an average priced product of $33.
Without exception the one formula that makes multiple value possible for a public company is x= (a*b/y)/c where X is stock price A is revenue B is earnings as a percentage of revenue Y is shares outstanding and C is rate of return.
With the fundamentals that 46% of each new public companies are given free to 14 million as customer stock options prorated at 2 shares each, and the average annual purchase is $33 with earnings of (+ or -) $.63, 61 million shares outstanding and a (+ or -) .03 rate of return we find;
That 14 million times $33 times $.63 divided by 61 million divided by .03 is a stock price of $159.05.
What this means is that the 14 million customer 2 free stock options are instantly worth $318.10 which is 9.64 times their cash purchase.
Now, there are ONLY two questions here to implement this solution requiring just 2,426 people to start.
1. Will 14 million customers buy a product or service for $33 when they know in advanced that their cash purchase will give them $318.10, $660, or $1,320 in instantly tradable equity?
2. Will 364 – 4,004 qualified readers head up a ‘virtual company’ within a formatted structure where the total registration cost and expertise are provided for a mere $30 participation fee and the ownership in each of the 364 – 4,004 new public companies is 31%?
31% of a $9.702 billion capitalized company (61 million shares times $159.05) is $3 billion.
Paul Katchings
http://www.b2bvp.com
Dear Jim:
I think your positive spin on an economic recovery vis-a-vis
upticks in the average workweek and temporary hires is a bit premature. It would be interesting to compare those numbers against the same metrics for the October / November periods in, let’s say, each of the last five years; Such an exercise might help to determine how much of a role seasonality plays in the increases you’ve noted. After all, workhours for manufacturers and wholesalers typically peak in advance of the holidays, and retailers beef up staffs with temporary help for the short term.
It’s ill advised to make too much hay out of the November jobs report. December’s employment statistics are likely to be somewhat skewed by seasonal factors as well, and therefore unreliable as an indicator of any jobs trend.
I will be much more interested to see the BLS numbers after January. By then, success or failure in the retail sector during the holiday selling season will have influenced hiring decisions for many business owners.
From an economic viewpoint, this is nice to hear (I leave my cheerleader viewing to CNN’s reporters – they are entertaining).
If I am to believe Donald Trump, banks are making zero loans; they are buying cushier offices and airplanes. If they make loans, since American businesses are much less creditworthy and who in their right mind wants dollar-denominated assets. I will be Brazilian businesses get US bank loans before US small businesses (who have to survive to create most of the new jobs).
I am most concerned about a generation trying to retire with dignity and make their jobs available to the next generation who are beginning to understand the wealth they expected to inherit ain’t coming as their parents are not only unable to afford to retire but won’t get out of the way to let the next generation have a career.
If we do have a successful economic recovery, is that good news for investors? If banks were making loans would they be charging zero? I don’t think so. I think that borrowers would line up at double-digit rates just to survive. If interest rates rise, can bond values rise or will bond fund losses offset their incoeme? Can growth funds or value funds grow in value if intererst rates are rising?
It seems to me that the long-term investors with only a short-term left expect to earn more from stock and bond funds than money funds?
With Morningstar unwilling to rate bear market funds at all what should investors do?
Buy-and-hold is not only dead but seems prepared to haunt investors into their financial graves, yet the financial services industry refuses to change their tune, Can we afford another Lost Decade or has the economy found their decade and investors lost theirs?
I ask a lot of rhetorical questrions to invite a rational response and to learn a few new tricks on how to reduce risks and increase returns in the 21st Century.
Can you help?