Friday, April 2, 2010

Jobs and the November election-What the new numbers might be telling us.

Employers added 162,000 jobs last month, and employment numbers in the previous two months were revised upward. Nationwide, the unemployment rate held steady at 9.7 percent. That’s good news for America, good news for the unemployed since it appears American companies are ready to start hiring again and appear to be already doing so, good news for Democrats since they will benefit in November from any improvement on the jobs front, and bad news for Republicans since a major portion of their mid-term strategy is built around hoping for a jobless recovery.

Let’s talk about jobs and elections. Obviously, if you are the party in power facing an election year, you don’t want high unemployment since, regardless of who is to blame for the job troubles, voters will punish the party in power. However, there is a caveat to that wisdom. Voters vote less on existing conditions than on their expectations about future conditions. In other words, if voters believe that the job picture is bad and likely to get worse then the party in power is in big, big trouble. Look out. However, if voters believe the job picture is still bad but starting to improve, if they think that six months are a year from now things will be better, they are less likely to punish the party in power. If you are the party in power, you will get hit but not nearly as bad as you would if voters saw only doom and gloom. You might even benefit for the sudden voter optimism.

The recent jobs reports suggest strongly that businesses have stopped cutting jobs and are beginning to hire again. Here’s more evidence.

Labor productivity grew by another 6.9%, while labor costs fell by 5.9% in the fourth quarter, according to the Bureau of Labor Statistics. That’s good news for the jobs picture. Why? Labor productivity is high not because of investments in technology but because employers have demand and gotten increase output from workers. Essentially, workers have agreed to give 110%, 120%, 150% and more because businesses demand greater performance and workers were terrified that they might lose their jobs. But, there are limits on how long businesses can keep getting productivity gains or even sustain them by asking more and more and more from workers. At that point businesses have no choice but to begin hiring again. That seems to be happening and potentially could accelerate.

And there is more evidence.

In 2009 we witnessed the most dramatic decline in labor costs—17.3%--for any year going all the way back to 1947. Labor costs are back to 2006 levels. Lower labor costs mean more money available to add workers.

Now, think about this. What happens if next month and the month after that we continue to see job gains? What happens if productivity in the first quarter levels off from last year or even begins to decline while labor costs stay at their current low levels? We could see a spurt in hiring. That in turn might encourage people who have given up looking for a job to start looking again with improved expectations that this time they will actually find something. The unemployment rate would not necessarily go down even if business are adding jobs. After all, people who had stopped looking and therefore were counted are now looking again, so unemployment stays high, say even 9% or more even up to the elections. But—big but—the dynamics have changed. Jobs are being added. People are getting interviews for openings or, at least, hear about others getting interviews. Businesses are posting job notices. Suddenly the outlook is different. Unemployment is still high but the expectation of what the job picture will be like in six months or a year is good. The present may still look dark but the future looks bright.

People vote based upon their expectations for the future and the November election scenario is a whole lot different. Democrats might hold there on. Hey, they might even gain ground.

You heard it first hear.

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