Where are the jobs?
We certainly hear this question a lot these, especially after May’s dismal jobs report showing only 41,000 new private sector jobs having been created that month.
Keep in mind we need to create around 150,000 jobs a month just to keep up with population growth. But when will it turn around? That’s the question on everyone’s mind.
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Well, the answer is pretty straightforward. In an economy that only has 10 percent of its jobs in manufacturing, jobs will turn around when service jobs turn around. And, it’s easy to tell when those jobs will turn around — look around you.
Do you see many new shopping centers, hotels, or office buildings being built? What about schools or medical offices and hospitals? In a manufacturing society, you could see job growth by watching how many factories went up. In our society, the new factory is the shopping mall and the office building.
And the reality is that we are putting up far fewer of these buildings than we were a few years ago and the prospects for more don’t look good.
A great index of future construction activity to watch is the American Institute for Architects Billings Index. It shows how many jobs architects are getting. If architects are getting jobs, that means a shopping mall or office building will soon be built.
The index is like the Purchasing Managers Index — anything above 50 means growth and anything below 50 means a decline in business. The AIA index has consistently been below 50 for more than two years. It has gone as low as 36. That means the “factories” of our society aren’t being built and that means jobs aren’t being built and won't be built for some time either.
You can find the index at http://www.aia.org/index.htm or, of course, you can also just look around you.
I know where I live in Washington, D.C., (a recession resistant town if there ever was one due to it being the home of the National Printing Press and the World’s Biggest Creditor) the number of office buildings going up has plummeted in the last two years, as have hotels and shopping centers.
A sky full of construction cranes a couple years ago is dwindling increasingly to a sky with cranes on just a few government related projects.
Everyone blames the credit crunch for the lack of construction, but in reality, that’s only part of the reason.
The real reason is that when economic bubbles pop, not only do asset values fall, but so do the jobs that were an integral part of those asset bubbles.
You can’t have a housing bubble pop and not lose a lot of jobs in banking, home construction, and retail.
You can’t have a consumer spending bubble pop and not lose a lot of jobs in retail, restaurants, hotels, and construction.
You can’t have a private credit bubble pop and not lose a lot of jobs in construction and finance. Most importantly, when these bubbles pop, they aren’t creating any more new jobs.
And therein is the answer to when the jobs will return — when the bubbles that drove that job growth re-inflate again.
And therein is the problem with job growth — bubbles don’t just automatically re-inflate.
You have to replace them with new bubbles or with real growth. In both cases, that’s hard to do.
Also, the bubbles have only partially deflated; the real deflation has been postponed by massive government intervention.
But, of course, that just creates an even bigger bubble — and we have recently seen what inevitably happens to bubbles.
About the Author: Robert Wiedemer
Robert Wiedemer is president of the Foresight Group, a macroeconomic forecasting firm that customizes its forecasts for specific businesses and investment funds. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here
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