In anticipation of the Labor Department’s January 2012 Jobs Report, the Gazelle Index staff wants to outline where we feel the unemployment rate will be by the end of 2012. The political pundits can debate whether or not an unemployment rate of 7.8% will re-elect President Obama. However, our prediction is that unemployment will be at that level or lower by election time, which is November, 2012.
This is a bold prediction since most economists are much more pessimistic. They argue that jobs have been eliminated permanently, and workers will have to be retrained with new skills before unemployment can be reduced significantly. However, a close inspection of the labor market indicates that 75% of the 6.5 million jobs which have not been recovered since the recession is in just three industries: Construction (30%), Retail trade (14%) and Manufacturing (30%). The implication is that workers do not have to be retrained for jobs in construction and retail, and the manufacturing sector is beginning to show signs of recovery. Jobs can be recovered quickly if the economy grows reasonably fast. Our prediction is that GDP will grow at 3% or above in 2012 for the following reasons:
Corporate investment will increase: For years corporations have been hoarding cash rather than investing because they were uncertain about the future. Recently, they have accelerated their fixed investment, which reached 15.7% in Q3 2011. As corporate confidence increases this investment will increase even more, which will create jobs for the unemployed and a greater demand for small business products and services.
Small businesses will increase hiring: Our recent Gazelle Index randomly selected 631 small business CEOs and asked questions about their future hiring plans. The survey found the following:
- Small business hiring plans: 27% plan to increase hiring while only 14% will cut back.
- Hiring will increase in all regions except the West: Hiring will be strongest in the South, followed by the Midwest and Northeast. In the West, more small businesses plan to cut jobs than add jobs.
- Industry hiring will be strongest in IT, and weakest in transportation: In rank order, the strongest hiring will occur in Information Technology; Management and admin; Wholesale trade, Health & Education, and Construction. The weakest will occur in transportation & warehousing, retail trade and Leisure.
- Hiring will be strong across race and gender groups, except for Hispanics. Small businesses owned by whites, blacks, and women plan to increase hiring significantly. However, more Hispanic owners will cut jobs than add jobs.
Manufacturing and new home construction is increasing: The index of manufacturing employment has increased notably and so have housing starts and new home sales. Because
60% of the jobs that have not been recovered since the recession are in those industries, their recovery will reduce unemployment significantly.
Consumers are spending more: Lately, consumer optimism has increased significantly, and they are starting to spend and save less.