Labor Market Has Far To Go


Businesses are investing, albeit cautiously, in new equipment and inventory. But as of yet, they have not begun hiring in earnest. That fact as much as anything else is keeping U.S. consumers worried. And as long as consumers remain concerned, the personal-consumption growth needed to power a robust expansion could prove elusive.

Consumers and businesses have a chicken-and-egg relationship. When businesses are hiring, consumers confident in their income potential tend to spend. When consumers spend, businesses throughout the supply chain collect a piece of the pie, which in turn can spark hiring.

In the last two years, private-sector payrolls (excluding farms) shed more than 6.3 million jobs, and the unemployment rate ballooned to 9.6% from 6.1%. That equates to a 6% decline in payrolls. Private-sector payrolls rose in each of the first eight months of this year. But at this year’s pace it would take another eight years to gain back all the private-sector jobs lost during the recession. From January through August, private-sector payrolls rose by 763,000 jobs, while the labor force increased by more than 1 million workers, as many of those who had stopped looking for work got back in the job hunt.

Hiring should pick up over the next year. A survey of forecasters by the Federal Reserve Bank of Philadelphia projects job gains averaging 144,000 per month in 2011. But with the recovery proceeding at a modest pace, we are unlikely to see sufficient hiring to return to a 6% or 7% unemployment rate for at least three or four years. Fortunately, high-quality stocks like those on our buy lists can do just fine in periods of moderate, steady economic growth.

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