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ADP Employment Report: Job Gains Continue in March – But Still Not Healthy
The ADP employment report released today (Wednesday) showed more job gains for March as private companies continued hiring – but remain at a slower-than-necessary rate for a healthy recovery.
According to a report issued Wednesday by payroll-processing company ADP, the private sector added 209,000 jobs last month, pretty much in line with what was expected. That was slightly lower than forecasts for 217,000 jobs gained, and a decrease from 230,000 jobs added in February.
The number was slightly lower than the pace set in February. Industry analysts say the speed of adding jobs needs to move much faster to push unemployment down to a healthy level.
Small businesses, those with fewer than 50 employees, continued to make up about half of all private sector job gains, hiring 100,000 people.
Real Unemployment Rate Could Give Obama Heartburn in November
A quirk in how the U.S. government calculates the unemployment rate has made the data look better than it is, some Wall Street experts are saying.
But in a stroke of bad luck for President Barack Obama, that same quirk will mask real improvements to the U.S. unemployment rate over the summer and into the fall, damaging his chances for re-election.
The official Bureau of Labor Statistics (BLS) unemployment rate has fallen from 8.9% in October to 8.3% in January. The number for February, released today (Friday), held steady at 8.3%.
"We think that the improvement over the last few months dramatically overstates the underlying improvement," Andrew Tilton, an economist at Goldman Sachs, told Reuters. "You will not see that rate of improvement going forward."
Rising Wages in China Good for Glocals, But Few Jobs Coming Back
Although some economists have predicted that steeply rising wages in China would bring some jobs back to the United States, the biggest winners will be the large multinational companies operating in China.
Last week the Guangdong province, where many of China's factories are concentrated, announced a 20% increase to the minimum wage. Combined with two earlier hikes in April and July, the total increase over the past 10 months is a startling 42%.
And with an eye toward booting domestic consumption, the government plans to keep the raises coming – on average 20% a year through 2015.
That extra money will get spent with domestic Chinese businesses as well as U.S. corporations with a strong presence in China – such as McDonald's Corp. (NYSE: MCD) – but is dramatically raising costs for Chinese manufacturers.
Between the wage increases and slumping global demand, the Federation of Hong Kong Industries warned on Tuesday that as many as one-third of Hong Kong's 50,000 factories could downsize or close by the end of the year.
As China's competitive advantage in wages erodes, some analysts have predicted a wave of jobs returning to the United States from China. A recent study by the Boston Consulting Group (BCG) forecast a return of 2 million to 3 million jobs by 2020.
But Money Morning Chief Investment Strategist Keith Fitz-Gerald doubts any repatriation of jobs will be quite so massive.
"That's wishful thinking on the part of Westerners," said Fitz-Gerald, who operates The New China Trader service for the Money Map Press, who noted that "labor rates are still very, very low" in China.
Although Fitz-Gerald said a few "industries with little value-added" could see the return of some jobs to the United States as a result of China's rising wages, other factors will restrain a mass migration of jobs across the Pacific.
Despite reports of major labor shortages in the eastern coastal parts of China, Fitz-Gerald said there remains "vast undeveloped low-wage areas ripe for industrial expansion" in the western provinces of China.
"They have a 50-year initiative called the "Go-West' program that is designed to push labor from the eastern regions to the western ones," Fitz-Gerald said. "If the jobs are pushed west, there will be no great exodus of jobs from China."
The majority of jobs that do leave China, he said, will probably go to areas with even cheaper labor, such as Indonesia, Thailand, Vietnam and Mexico.
"That should make U.S. manufacturers very nervous," Fitz-Gerald said of Chinese jobs moving to Mexico. "The Chinese would be building stuff on our back doorstep."
With a factory just across the U.S. border, a Chinese manufacturer would save a lot of time and money on shipping.
Job Market Won't Normalize Until At Least 2023
Disgruntled American workers have yet another reason for pessimism: At the current rate of job creation, the U.S. unemployment rate will not fall back to "normal" levels – below 6% – until 2023.
Through most of this year the U.S. economy has managed to create about 119,000 jobs per month, but that's barely enough to keep pace with population growth. Only job creation levels of well over 120,000 jobs per month will drive down the 9.1% unemployment rate.
For example, to get the unemployment rate below 6% by the end of 2014, job creation would need to be about 244,000 per month – more than double current levels.
"The sluggish recovery in employment is continuing, with private payroll growth still not even fast enough to keep unemployment from rising further in the medium-term, never mind bringing it down," Ian Shepherdson, chief U.S. economist at High Frequency Economics, told AFP.
That's grim news for millions of Americans.
Although a revived U.S. economy would go a long way to beefing up job growth levels, few see an imminent turnaround, including the typically optimistic chairman of the U.S. Federal Reserve, Ben Bernanke.
On Wednesday Bernanke revised the Fed's projections for the unemployment rate upwards, with estimates for 2012 now up from 8% to 8.6% and estimates for late 2014 at between 6.8% and 7.7%.
"Evidently … the drags on the recovery were stronger than we thought," Bernanke said at a news conference.
Of course, Bernanke himself is partly responsible for the poor rate of job creation, according to Money Morning Global Investing Strategist Martin Hutchinson.
"It's Bernanke's fault," Hutchinson said. "The very low interest rates are causing companies to substitute capital for labor. You can see the effect in today's very good third-quarter productivity number — employers are using less labor per unit of output and more capital, which they can get cheaply. The effect is that job creation is very slow. That's the very opposite of 1983 when interest rates were very high and job creation averaged about 400,000 a month."
The high unemployment rate has become a major problem for U.S. President Barack Obama, whose attempts to address the issue have had little impact.
Hutchinson said there isn't much that the president or Congress can do to create jobs, although that cutting federal spending would help "because it would free bank funds for lending to small business."
It's the Fed that could have the greatest impact.
Layoffs at U.S. Companies Portend Poorly for 2012 Prospects
Anticipating a sluggish economy for the rest of this year and into 2012, several major U.S. companies have set aside money to pay for possible layoffs and plant closures.
Such moves will help corporations maintain earnings growth, but will add pressure to the U.S. unemployment rate, which for more than two years has been stuck around 9%.
Some analysts worry that the talk of layoffs at some U.S. companies could trigger others to consider cutting positions, which in turn would cause further damage to an already stagnant economy.
"In many ways, this is part of the negative feedback loop," Deane Dray, an analyst at Citigroup Global Markets, told The Wall Street Journal. "Once you start head-count reductions and plant closures, you are adding to the unemployment, you are adding to the anxiety in the market."
Of course, it's not the job of chief executives to worry about what impact their decisions have on the overall economy. And having lived with an economy that just can't seem to climb very far out of recession, many CEOs feel it necessary to prepare for a challenging future.
"We all read the headlines," Danaher Corp. (NYSE: DHR) Chief Executive Larry Culp said last week during an earnings conference call. "It's better to be prepared and ready for what may come than to postpone what we think is a very prudent action."
Danaher said it would increase its fourth-quarter restructuring budget to $100 million – twice its previous amount.
Likewise, United Technologies Corp. (NYSE: UTX) raised its restructuring budget by a third to $300 million, and Honeywell International Inc. (NYSE: HON) said it would use $300 million it gained from a divestiture for restructuring.
United Technologies, which has already cut $188 million so far this year, says it is determined to hit its 10% earnings growth target for 2012.
"We're going to continue to push them to get toward 10%, and we're doing the restructuring now," United Technologies Chief Financial Officer Greg Hayes said on his earnings conference call last week. "We're doing whatever we can to try and make sure that that happens."
Jobs Under Siege
Many job cuts already were in the works well before the latest talk of restructuring.
As recently as this past summer, Merck & Co. Inc. (NYSE: MRK) announced that it planned to shed 13,000 workers by 2015; Lockheed Martin Corp. (NYSE: LMT) announced plans to cut 6,500; Cisco Systems Inc. (Nasdaq: CSCO) 6,500; Research in Motion Limited (Nasdaq: RIMM) 2,000; and Goldman Sachs Group Inc. (NYSE: GS) 1,000.
"These layoffs were very broad-based. Many of these companies are iconic companies, well known, big names," John Challenger, CEO ofChallenger Gray & Christmas Inc. told CNBC. "This is what precipitates out when you have an economy that is stalling."
According to Challenger, September was the worst month for announced layoffs in the United States in over two years, with both private and public sector employers slashing 115,730 workers — more than double the number let go in Sept. 2010.
Even companies not talking about layoffs have lowered their expectations for the fourth quarter, and in many cases, for 2012 as well.
Seven Potential Employment – And Profit – Opportunities
With the U.S. unemployment rate steady at 9.1% and President Obama's jobs plan creating more conflict than opportunity, it's hard to believe there are U.S. companies that are hiring.
But there are.
Even taking into account the gloomy economic outlook, these companies project growth into next year that will increase revenue and require more employees.
That's good news for job seekers, but it benefits investors as well, since they will have the opportunity to profit from the higher share prices that come as a result.
So here are the sectors the most hiring right now, as well as seven companies that could parlay employment opportunities into higher profits.
Real Job Growth vs. Temp Hires
Some of the biggest hiring increases are coming from the U.S. auto industry.
Ford Motor Co. (NYSE: F) recently announced plans to hire as many as 7,000 new workers by the end of 2012. Many of the new positions will help develop new battery-powered cars, but they also reflect the company's improved earnings. After losing $30.1 billion in the period from 2006 through 2008 and borrowing $23.4 billion to survive, Ford earned $9.28 billion over the past two years.
Ford's improvement spilled into the rest of the auto sector, with both General Motors Co. (NYSE: GM) and Chrysler Group LLC (which is now partnered with Italy's Fiat SpA) ramping up hiring over the past year.
Healthcare, medical, and drug companies also have picked up hiring in a trend that is expected to continue into 2012. According to human resources publication Benefits Pro, healthcare jobs now account for 10.8% of the total U.S. workforce, including 30,000 new positions created in August when overall U.S. job growth was flat.
Healthcare stocks have responded to the sector's growth. MSN Money on Oct. 4 posted the top performing stocks so far this year, which included five companies in the medical/healthcare sector boasting gains of 30% or more.
Still, you must be aware of potential traps when searching for the job-adding sectors. Some companies are only hiring seasonal or temporary workers, and their short-term payroll increases won't translate into stock-price gains.
The "Currency Manipulator" That's About to Put 3 Million Americans Back to Work
Think U.S. jobs are destined to drain away to China forever? Think U.S. unemployment will grow and grow while cheap overseas labor supplants American workers? Think your children will be forced to work selling Big Macs to Chinese billionaires?
Well, boy has the Boston Consulting Group (BCG) got news for you.
The United States' No. 1 strategic consultancy's latest study shows 2 million to 3 million manufacturing jobs and about $100 billion in output can be expected to return to the United States from China by 2020.
That's right. China, so often the scapegoat for U.S. joblessness – and an alleged "currency manipulator" – actually is becoming our best ally in the fight against high unemployment.
The BCG team says three things will bring millions of Chinese jobs back to America:
- Soaring Inflation. China's annual inflation pulled back to 6.2% in August after hitting a three-year high in July. It's rumored that the People's Bank of China will allow the yuan to rise further to curb rising prices. A stronger currency will make the country's exports and labor less competitive.
- Rising Wages. Chinese labor is steadily becoming better educated and more affluent. The central government is targeting an increase in minimum wages of 13% a year through 2015.
- And A Stronger Yuan. The yuan has risen about 30% against the dollar since 2005. Again, the great motivator here is not the saber rattling of U.S. politicians, but rather troubling levels of inflation that could spur civil unrest.
Made in the U.S.A. (Again)
Indeed, Chinese manufacturing, which had been much cheaper than U.S. manufacturing for the last decade or so, is suddenly less competitive in certain sectors.
This should come as a huge relief for Americans.
Modern telecommunications and the Internet revolution made it easier and cheaper than ever before to run a global supply chain. Consequently, U.S. manufacturing was priced out of the market.
We saw it first in cheap clothing – a highly labor-intensive industry where U.S. factories were already struggling.
The move to Chinese clothing sourcing, pushed into overdrive by Wal-Mart Stores Inc. (NYSE: WMT), brought immense cost benefits to U.S. consumers. In fact, the Bureau of Labor Statistics price index for apparel has declined by 15% in nominal terms since 1993, compared with a 50% increase in consumer prices as a whole.
U.S. Federal Reserve Chairman Ben Bernanke and his predecessor, Alan Greenspan, helped this process along with their ultra soft money policies. We haven't had much inflation because of the price declines brought by outsourcing, but for many years it has been exceptionally cheap to raise money for investment in emerging markets. China and other emerging markets already had a cost advantage in cheap labor, and the Fed's loose monetary policies further encouraged outsourcing.
As a result, U.S. workers can now buy cheaper clothes from China through Wal-Mart, but are losing jobs and being forced to accept lower wages. And since Bernanke cannot be persuaded to reverse policy and raise interest rates, it was beginning to look as though U.S. jobs would drain away until American wages were at Chinese, or even African, levels.
However, the BCG report is a very welcome sign that this process could actually be coming to an end. Chinese wages have risen so much that U.S. labor is now competitive when its higher productivity and lower transport costs are taken into account.
High Unemployment Means More Job-Killing Taxes
The unemployment problem in this country has gotten so bad it's starting to sustain itself.
Essentially, high rates of unemployment have led to tax increases that are further suppressing hiring – thus making an already-ugly unemployment problem even worse.
That's bad news for thousands of prospective employers and millions of Americans.
Paying for the Unemployed
Sept. 30 was the deadline for states to pay more than $1 billion in interest payments for loans used to cover unemployment benefits. It was the first time since the start of the economic downturn that states had to pay interest on federal borrowing.
And many states were forced to raise unemployment taxes to cope with the extra burden.
Employers in 2010 paid 27.8% more in state jobless taxes than they did in 2009. Employers in 24 states will have to pay between $21 and $63 more per employee following another tax hike in January 2012.
"Unemployment taxes, which were a relatively low bottom-line cost in 2008, are now becoming a significant cost," Doug Holmes, president of UWC – Strategic Services on Unemployment & Workers' Compensation, told CNNMoney. "It discourages companies from electing to hire new employees."
The extra expenses hit small businesses especially hard.
"We try not to hire because we will be socked by a bigger tax bill for unemployment insurance," Margery Keskin, an executive at four small construction-related companies in New York, told CNNMoney. Keskin said she's had to take money from bonuses and profit-sharing plans to pay higher unemployment taxes.
Job Cuts Ahead
These additional costs are just the latest obstacles hitting the dismal U.S. jobs environment. While businesses are already uninterested in hiring new workers, the added expenses paired with the weak economic outlook will lead some companies to trim their workforce.
A quarterly survey released last week by the Business Roundtable found 24% of chief executive officers (CEOs) expect to cut U.S. jobs over the next six months, up from 11% in the second quarter.
Obama's Jobs Plan Will Barely Dent Unemployment
Even if passed intact, U.S. President Barack Obama's jobs plan, though ambitious, would at most nudge down unemployment by a single percentage point over the next year.
Furthermore, the Republican-controlled House of Representatives will surely object to several provisions in the American Jobs Act – particularly the total $447 billion price tag – further diluting its impact.
President Obama's jobs plan includes:
- Tax breaks for both individuals and businesses.
- Financial aid to states aimed at repairing schools and retaining public sector jobs such as policemen and teachers.
- An extension of unemployment insurance.
- And money to repair and upgrade transportation infrastructure, such as highways, railroads, and airports.
Wall Street, already worried about events unfolding in Europe, seemed less than impressed by the proposals. Stocks started down Friday, the morning after President Obama's jobs speech, and meandered lower throughout the session. The Dow Jones Industrial Average slipped 2.69%, while the Standard & Poor's 500 Index dropped 2.67%.
"There was nothing in the president's speech that would inspire the stock market one iota forward, and I think we can see that reflected already this morning," Money Morning Capital Waves strategist Shah Gilani said on the Fox Business Network program "Varney & Company."