The last few months have seen a flurry of economic stimulus measures: The Federal Reserve has begun its purchase of $600 billion in bonds, and Congress has passed – and President Barack Obama has signed – a broad extension of tax cuts, including a surprise decision to cut the Social Security withholding tax by 2%. But will any of those measures create enough new jobs to finally get the economy moving?
Among economists, the consensus is that the job outlook will improve very slowly in the first half of 2011 – but that unemployment numbers could keep rising through the summer. If they’re right, the jobs conditions could spook consumers, who account for the bulk of economic activity, up to 70% by some measures. Businesses have shown no eagerness to start hiring in such an uncertain environment.
Thousands of New Jobs on the Way
Kenneth Goldstein, a labor economist at the Conference Board, an executives association, expects an average of 125,000 to 150,000 new jobs to be created each month next year. He’s raised his forecast from just 30 days ago, when he estimated 100,000 new jobs would be created each month, largely due to the Obama Administration’s deal to extend the Bush-era tax cuts and lower the withholding tax.
Still, he warns that long-term interest rates could slow that growth. “The [economic] package is going to help, certainly, but it’s offset by the big run-up in long-term interest rates,” Goldstein says. The yield on the 10-year Treasury bond rose to 3.48% Tuesday, up about 1 percentage point from a month ago. That means it now costs homebuyers and businesses much more to borrow money than it did even a few weeks ago.
However, Joel Naroff, president of Naroff Economic Advisors, a Holland, Penn.-based forecasting firm, is much more sanguine about the job outlook. “I actually think we’re on the cusp of a clear turnaround,” Naroff says. He thinks job creation could grow to 150,000 to 200,000 new jobs per month by the summer – and as many as 250,000 a month by year-end.
Are Buyers Liars?
Where does this difference in opinion come from? Part of it has to do with varying interpretations of recent economic data, especially Tuesday’s downbeat report on consumer confidence. The Conference Board’s consumer confidence index declined to 23.5 from 25.4 in November, which surprised many economists in light of the relatively positive retail sales numbers for the holiday season.
The declining confidence suggests that consumers were hunting for end-of-the-year bargains during the holidays, which would be a temporary – not a long-lasting – phenomenon, Goldstein says. But Naroff says he lends more weight to what consumers are actually doing – spending more – than to what they say about their confidence.
“If job growth continues to increase at 10,000 a month, by summer you’re looking at 175,000 to 200,000 a month,” Naroff says. “That assumes consumers are getting more comfortable.” Still, he acknowledges that the private sector added only 50,000 jobs in November, which was substantially below expectations.
With the inflation rate stagnating at only 1.2% and hourly wages rising 1.6%, employers have little incentive now to add jobs, Goldstein says. “If it’s going to cost you 1.6% more to hire that person and you’re only going to get back 1.2% on whatever you sell, even with a productivity dividend it’s awfully hard to see where you’re going to make money on the deal,” he says.
Some Jobs Are Gone for Good
Uncertainty about the cost of Obama’s health care package, adopted earlier this year, also is keeping employers cautious about adding workers, Goldstein adds.
He expects the unemployment rate to grow to 10.2%, from the current 9.8%, in the first few months of the new year. As more long-term jobless workers rejoin the official unemployment numbers, the rate could remain high through the middle of the year, he adds.
Goldstein predicts that unemployment will remain above 6% as late as 2014 or 2015. In fact, employment may never return to earlier levels, he forecasts, because businesses found it was profitable to cut jobs. “Some of those folks in their 40s and 50s may not realize it, but they are not going back to work, period,” he says.
While economists disagree about the exact speed of jobs creation next year, most expect at least some growth, however slow. Any number of possible surprises, of course, could change that. For example, if sharply spiking oil prices reduce the amount people drive – and shop – the economic outlook and jobs growth could decline.