By Gary D. Burnison
With new homes sales steadily ticking up, and an improved annualized gross domestic product (GDP) growth rate, one would think that employment would improve vastly and be better than the 7.8 percent we have today. But, it is not, and don’t expect it to be in the near future – here is why.
Here’s a fact: According to the National Association of Home Builders, each new home creates an average of 3 jobs for a year and $90,000 in taxes. But, you can forget the past history that as home sales rose, employment was sure to improve. In the latest housing bubble that peaked in 2006, the unemployment rate was below 5 percent. The GDP annual growth rate was 2.7 percent. But, in 2013, in other business sectors, we are cutting more jobs than home sales can generate.
Growth is happening
So, this month, while it has been reported that U.S. homebuilders broke the 1 million mark for seasonally adjusted annual rate of new construction in March 2013, it is still not enough. It was the first time since June 2008 as the pace of homes starts rose 7 percent from February to March according to the Commerce Department.
And good news continued as Gross Domestic Product (GDP) hit a 3 percent annualized rate from January through March “according to the median forecast in a Bloomberg survey of 69 economists from April 5 to April 9. That’s up from the 2 percent gain projected last month and 1.6 percent in December.”
But, keep in mind, our housing and unemployment numbers are being propped up by QE3, the Fed's purchases of $85 billion in securities a month. In addition, housing is being supported heavily with mortgage interest rates heading to all-time lows. While this is not a housing bubble like 2006, this is also not a true economy based on demand.
So, despite the economic upticks to the U.S. economy, which includes the Dow recently hitting all time highs, we have sporadic job growth. In the last two months reported for example, the Bureau of Labor Statistics announced 88,000 jobs created in March, yet 236,000 were added in February.
While we are adding jobs, the BLS report for March also noted that, “The civilian labor force declined by 496,000 over the month, and the labor force participation rate decreased by 0.2 percentage points to 63.3 percent.” The reality is that people are also “checking out” of the workforce.
Where are the jobs?
The question is why aren’t we really creating jobs? My answer is that in my meetings with CEOs globally, few are willing to invest in anything where there is not a clear economic return.
However, there are some sectors where there is great economic return and growth. An example of a hot, yet narrow market is software-as-a-service (SaaS). According to the latest MW Global IT Index, a quarterly report on valuations of IT enterprise companies, SaaS company enterprise valuations were up more than 20 percent in 2012, outpacing the economy.
Yet, SaaS is a growing industry that improves efficiencies. In a sense, it is the outsourcing of jobs to technology, rather than the outsourcing of jobs to a lower cost labor force.
CEOs are willing to invest in technologies that improve efficiency and reduce cost in an instant. As one CEO said to me, “You can’t beat better, faster, cheaper.” But, these investments do not grow economies, they improve efficiency.
This growth isn't real?
Next, some CEOs of global companies are hitting the market growth wall. Without a clear window into consumer demand and growth, CEOs are reluctant to approve an increase in headcount. And, CEOs cannot bank on jobs based on the Fed pumping money into the economy forever. Headcount must necessarily deliver a real return on investment supported by real consumer demand.
With no window into real growth and real demand, plus with improved efficiencies to cut costs, it adds up to a “new normal” in employment. The new normal shows that economic indicators such as housing up and GDP up, yet job growth is tamped down. Although we may see job growth in one month, we may not see it in the next.
In the next two weeks, the government will release statistics on new home sales, plus the April job numbers will be revealed. Again, we may, or may not actually see good numbers for both reports, but our overall unemployment situation around 7.8 percent probably won’t change.
For robust job creation to really begin, it will require new jobs and new industries that can drive a new economy. The next recharge we need is the next industrial revolution to drive jobs.
While home sales and GDP have been a bellwether of hiring in past economic cycles, don’t necessarily expect it in this cycle. This cycle is the new normal of unemployment. It is a cycle we must break, with a real economy, to truly drive jobs and solid economic growth.
So, the question is can we spark a new economy that will be the next industrial or Internet revolution? That’s the $10 trillion question. My answer: definitely. But to do so, will take the next breed and generation of executives and risk-taking entrepreneurs.
Gary D. Burnison is CEO and board member of talent management firm, Korn/Ferry International. He is a New York Times best-selling author of No Fear of Failure and the most recent bestseller, The Twelve Absolutes of Leadership.