Bubble, bubble, toil and trouble. How does America’s labor garden grow?
The first line may be from a witch’s brew in Act IV of Shakespeare’s “Macbeth,” while the second is a variation of an old nursery rhyme, but both ditties characterize the changes that are ongoing within the U.S. jobs picture.
Americans are working amid a backdrop of a potential housing bubble in certain key markets. Meanwhile, the stock market is back on course for a series of wild roller-coaster rides while it awaits an expected interest rate hike by the Federal Reserve this summer. On top of those concerns, there’s more trouble overseas such as the war on terror and the war in Iraq, worry about the price of oil and fear that inflation is looking to make a comeback as well as uncertainties in an election year and the issue of outsourcing.
While Americans were optimistic in April, the Conference Board, which tracks consumer confidence, raised a note of caution in last month’s report. Buried at the end of it’s release, in the last sentence, was a notation that “consumers anticipating an increase in their incomes declined to 17 percent [in April] from 18 percent” in March.
To be sure, U.S. consumers have a lot to think about before handing out their hard-earned dollars. In the end, it really is all about jobs, and of course, income.
The jobs picture looks good, at least for now. U.S. payrolls were up 288,000 in April following a March report of gains of 308,000. The March report has since been revised upward to 337,000. But now there’s more talk about layoffs, with Winn Dixie and MCI certainties at 10,000 and 7,500 each, respectively. There are also rumblings that maybe the jobs report isn’t reflective of what’s really going on after all. The concern is that the jobs that are created are lower-paying in comparison with the jobs that were lost.
So where do we go from here?
Carl Steidtmann, Deloitte Research’s chief economist, said job growth in the last four months has been fairly strong, particularly in an economic environment where businesses had a lot of excess capacity.
“There was a lot of excess capacity in terms of people. Companies have been loathe to lay off highly skilled people knowing that they would have to hire them back. From what I see, the job growth we’re seeing is very much sustainable. What is driving it is profit growth. Once you start seeing corporate profitability, then it follows that businesses will begin to feel comfortable hiring people. Once the job market begins to show some forward momentum, it is hard for it to be derailed. The momentum builds on itself, developing purchasing power [for businesses] and stimulating consumer spending,” said the economist.
Regarding outsourcing, the latest political and industry catchword, it’s not anything new. Rather, the current incarnation is more about U.S. firms purchasing services overseas.
“What makes it different is that 30 years ago, the people who were being displaced were less educated. The folks who are displaced now are more articulate. In the long run, it is a very positive development because it is another factor that will drive lower costs for all businesses in a competitive market place,” said Steidtmann.
Anne Maxfield, president of Project Solvers, an apparel and retail industry search firm, also believes outsourcing has provided some benefits to the apparel and retail industry that in turn have trickled down to the consumer.
According to Maxfield, “Apparel and retail jobs have been going outside of the country for years, so I don’t think that the latest round of outsourcing affects the industry as abruptly as it does in other sectors. Even with all the production jobs going overseas, what we’ve noticed is the creation of different employment opportunities here. While we’ve lost some lower- and medium-paying jobs, we’ve also lost sweatshop jobs and gained good middle-class jobs. Designers with technological skills is the most direct correlation.”
She expects that as the next wave of outsourcing continues, design jobs would still stay in the U.S., along with sales jobs. Production would likely be split with some jobs here and others going overseas.
“Our industry has faced highs and lows in terms of employment, but it hasn’t shut down. Work by pattern makers and sample makers were all done here at one point, but it is hard to say how much would have gone over to the Web anyway. In the end, what you see is the garment industry still thriving. In addition, for all the work that is done overseas, consumers now have the opportunity to buy better product in terms of fashion content and quality at different price points,” she concluded.
Of course, there have been questions raised about whether the changes in the job market were a correction after all those boom years of the late 1990s or whether the country is undergoing a structural economic change that is impacting America’s employment outlook.
Government data shows substantial growth in the number of jobs. Since 1990, the employment level of all U.S. workers, 16 years and older, is up 16.1 percent, according to the Department of Labor.
Steidtmann believes the transformation in the jobs picture reflects a “structural change in terms of the whole process of globalization, going from manufacturing into services. It is affecting the U.S., and is affecting everything everywhere else.”
Robert D’Loren, president and chief executive officer of UCC Capital Corp., a firm focused on corporate whole-company securitizations backed by intellectual property, said, “This is a structural change where everyone is trying to keep costs down and wring every bit of efficiency out of every sector. On the one hand, the consumer gains because prices are cheaper, but also loses on the other hand because there are no blue collar manufacturing jobs left.”
For D’Loren, one solution is for the country to get better at training workers in ways that allow them to be more creative. Also key is making sure employees improve their technology skills to gain new efficiencies.
“Sophisticated, high-end technological skills are still the domain of the U.S. Competitively, the focus now is on cheaper labor costs,” he said.
“On the jobs picture, it’s a matter of reorienting people to an emphasis on small business services and educating people to be prepared for technology-related jobs,” D’Loren advised.
In the meantime, workers in the U.S. may have to face another reality, one defined by two words: Wage stagnation.
According Richard Hastings, credit economist at Bernard Sands, the problem for many consumers who have jobs is the wage market. “Wages are not keeping up with inflation,” he said.
Real average weekly earnings climbed 0.2 percent in April from March, according to the Bureau of Labor Statistics. Year over year, average weekly earnings climbed 2.5 percent. The bureau also reported rising producer prices. Finished consumer goods rose 1.4 percent in April while dairy prices rose 10.4 percent and crude materials increased 3 percent. In turn, the consumer price index jumped 0.2 percent in April.
“There is nothing that helps consumer keep up with the cost of housing, or the higher cost of repairing and modernizing homes. Consumer savings is not at the level where it was before. The consumer is carrying too much debt. It is very easy for consumers to get credit, whether it be a mortgage loan or other form of credit. Credit is now viewed [by employers] as a form of alternative compensation because they know that credit is in the system,” Hastings said.