Expectations ahead of April's U.S. jobs report were that it could deliver some good news about the U.S. economy. A robust number would have alleviated worries the economy is faltering the third year into a tepid recovery. But that is not what we got. The jobs report, released before the bell Friday, showed a net […]
The markets slid yesterday on news that U.S. consumer spending increased by 0.3% in March, while income rose 0.4% over the same time frame. This is the first time since December we've seen income rise faster than spending.
I can't say I am entirely surprised.
As prices for "must haves" like gasoline and food continue to rise, consumers are digging into their savings to cope. This is not small potatoes, given that the average family saved a mere $38 out of every $1,000 in take home pay last month, according to the U.S. Commerce Department.
I can't help but have huge concerns about Team Bernanke's plan; no amount of stimulus is going to overcome the struggle most families are having – which is to boost savings and shed debt.
Here's the thing… if consumers can't save, then they can't buy. And if they can't buy, they can't build up the nation's wealth, which is predicated on consumer spending.
All three sets of figures in isolation really don't tell you much. But when taken together – spending, income, and GDP – they suggest our economy is too weak to put millions of Americans back to work, much less in jobs for which they are appropriately qualified.
Fewer workers are marching in the unemployment line, but the March employment report shows that many are not yet returning to work.
U.S. employers added 120,000 jobs in March, pushing the U.S. unemployment rate down to 8.2%, the Labor Department reported today (Friday). Economists were looking for 210,000 jobs to be added in March, and the unemployment rate to stay at 8.3% as more discouraged workers reentered the job market.
Most market participants will have to wait until Monday to react to the disappointing numbers as exchanges are closed in observance of the Good Friday holiday. However, the bond market is open in a shortened trading session, and the Dow futures tumbled some 111 points following the release.
The less than stellar March employment report conflicts with several recent private surveys that show the economy is improving.
The March Employment Report Numbers
In the previous month, employers added 227,000, slightly more than expected. February capped the best six-month streak for job additions since the height of the financial crisis in 2008.
Michael Erwin of CareerBuilder recently told ABC News, "Thirty percent of employers we spoke to say they plan to hire full-time positions in the second quarter." That compares with 24% in the last survey three months ago.
Erwin added, "The numbers are going back to where they were pre-recession so that's good news employers are back to the table, they're looking to hire."
Jobless claims are now down to their lowest level in four years, after falling to 357,000 in the final week of March, the Labor Department said Thursday in advance of the monthly jobs report.
While the decline in unemployment insurance claims is good news, it does not tell the whole story.
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.
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."
More people have jobs in America this month than they did last month, so says the U.S. Bureau of Labor Statistics (BLS). But the headline unemployment rate of 8.3% isn't the whole story. It's not that there wasn't positive news. The addition of 243,000 new jobs far exceeded economists' expectations for an increase of 150,000. […]
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.
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.
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.
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.