Tuesday, May 5, 2015

More Jobs On the Way

Popular Economics Weekly

It looks like the April unemployment report out on Friday could be gangbusters. Not only because U.S. winters have been so severe of late, and job formation abnormally low. But because manufacturing jobs in particular are returning to US.

Sixty thousand manufacturing jobs were added in the U.S. in 2014, versus 12,000 in 2003, reports Marketwatch, either through so-called reshoring, in which American companies bring jobs back to the U.S., or foreign direct investment, in which foreign companies move production to the U.S., according to a study from the Reshoring Initiative. In contrast, as many as 50,000 jobs were “offshored” last year, a decline from about 150,000 in 2003.

One reason is our increased cost competitiveness, with lower oil and gas prices reducing energy costs, and wages rising in Asia as their consumers move into the middle class. Also our booming service sector—April’s ISM non-manufacturing index just rose to 57.8 from 56.5 percent—has increased our demand for goods and services. These are service sector products and services that can only be consumed domestically, and so durable goods made for them would be cheaper if produced closer to home, with the aforementioned factors.


Graph: Econoday

New Orders are very strong, at 59.2, as are backlog orders, at 54.5 which is unusually strong for this reading. Strong orders point to future hiring which is already very strong, at 56.7. The percentages are a measure of optimism or pessimism. When more than 50 percent of respondents report positive results in all these areas, then service sector is expanding.

Among the world’s top 10 export economies, the U.S. last year ranked No. 2 — behind only China — for cost competitiveness, according to the Boston Consulting Group, with real estate and natural gas and other energy prices tending to apply downward cost pressure in the U.S.

CEO Jeff Immelt of GE has said the U.S., on a relative basis, has never been more competitive. For instance, he’s said it takes three hours or less to make a refrigerator, so the total cost can be lower to have it made domestically versus in China or Mexico when factoring in other costs including transportation.

Secondly, the Labor Department’s latest JOLTS report showed the highest number of job openings since January 2001. The latest Job Openings and Labor Turnover Survey reported 5.13 million job openings in February,


Graph: Calculated Risk

The number of job openings (yellow) is up 23 percent year-over-year compared to February 2014. Quits are up 10 percent year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). It means an improving jobs market, since workers are increasingly willing to leave their current jobs for better jobs elsewhere.

The employment picture is also better with small business that creates a majority of domestic jobs, as the NFIB, National Federation of Independent Businesses, have reported steadily increased employment in 2014, though 2015 is showing a slight drop in business optimism, probably due again to winter.

The net percent of owners reporting an increase in employment fell 5 percentage points to a net negative 1 percent of owners, said the NFIB, down substantially from the recent high of 9 percent in December 2014. Fifty percent reported hiring or trying to hire (down 3 points), but 42 percent reported few or no qualified applicants for the positions they were trying to fill. 

Ten percent reported using temporary workers, down 2 points. Twenty-four percent of all owners reported job openings they could not fill in the current period, down 5 points from February which was the highest reading since March, 2006. A net 10 percent planning to create new jobs, down 2 points but a solid reading.

Overall the economy will keep moving forward, but more like a turtle than a hare. Bad weather was certainly depressing and Washington politics remains focused on issues that have little bearing on the current economy,said Bill Dunkelberg, NFIB Chief Economist

The bottom line is there are more available job openings than ever, and wages and salaries are beginning to grow above the inflation rate. This is a sure sign of a virtuous circle. Increased household incomes means more demand for products, which creates more jobs, which in turn creates even more demand. This is how economies growth.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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