When will the U.S. see job growth?
March 31, 2010
By: Taylor Graff, Senior Associate

As the economic recovery gains traction, financial markets and economic statistics have seen significant improvement.  The greatest exception has been employment.  While the massive job losses of 2008 and most of 2009 have abated, the economy is yet to experience any significant job growth.  Employment has always been considered a lagging economic indicator (meaning that economic growth precedes employment growth) but in recent recessions, that lag has become painfully longer giving rise to the term “jobless recovery.”

Another Jobless Recovery?

No one knows exactly what causes jobless recoveries and why they have become prevalent in recent decades. A Nobel Prize in economics likely awaits the first to solve the riddle. However, there are certain statistics which indicate what kind of recovery this will be. CCM analyzed historic employment trends and found the following statistics to be key indicators for employment growth:

1. Temporary Employment: As business activity picks up, employers tend to add temporary help before committing to additional permanent employees.
2. Personal Spending: Generally, businesses wait until they see top-line (revenue) growth before looking to add employees and revenue growth largely comes from increased personal spending.
3. Leading Economic Indicators: The Conference Board (a private, non-profit business organization) reports a composite of ten statistics to create an index of Leading Economic Indicators (LEI). As LEI improves, businesses will feel more comfortable adding employees since business activity is likely to improve.
4. Labor Productivity: Perhaps it is counter-intuitive but labor productivity is a counter-indicator meaning that as productivity increases, employment tends to decline. This is because as labor becomes more productive, employers need fewer employees to produce the same amount of product.

The following table shows how each of these variables has changed over the last twelve months.

Rises in temporary employment, personal spending and LEI positively impact employment versus the negative impact of higher labor productivity.

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