Are Jobs Rebounding?

Most economic developers are looking for an answer to this almighty question. Here is the lastest from Global Insights on this issue.

Global Insights economists are saying that a case can be made that there is a growing pent-up demand for labor. Companies have been squeezing a lot of productivity out of their existing work forces. As they begin to believe that the current upturn in growth is likely to be sustained, they will relent and begin hiring once again.

One way to see this is by comparing the growth rates of GDP and productivity. In the middle of this year, real GDP has been growing at a rate of about 3%, while productivity has been rising at a more robust rate of 4%. Global Insight expects that—by the middle of next year—these trends will reverse, with output growing at 4% and productivity growth decelerating to 3%. This is consistent with the pattern of past recoveries, although it has occurred with a substantial lag during this upturn.

The expected slowdown in productivity growth means that employment—as well as the number of hours worked by the average employee—will increase. Global Insight predicts that by the middle of 2004, payroll employment will be rising at a monthly rate of around 250,000 to 300,000 jobs. However, because labor force participation is also expected to pick up, the unemployment rate will likely remain at current levels for most of the next 12 months.

How might all this play out in the future? If the pent-up demand for labor does not materialize and productivity growth does not slow, then the jobs picture will continue to be gloomy, and the economy will enter another soft patch. Global Insight estimates that if productivity continues to grow at a 4% rate between now and the elections in November 2004, the economy will generate between 1 million and 1.5 million fewer jobs than projected in the baseline forecast, hours and GDP growth unchanged. In the event, both hours and GDP would be likely to fall, resulting in an even larger shortfall of jobs.

I am inclined to agree with the Global Insights' analysis of how things might go over the next 6-12 months. Let's keep our fingers crossed that the jobs materialize and that they happen in American communities instead of new production centers in China, India and Singapore.

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