A Bright Spot Among Unemployment Gloom

On the face of it, it looks like we have left most of the financial crisis behind us. But America's long-term economic health seems in question, thanks to staggeringly (and persistently) high unemployment and the country's hitting its debt ceiling.

Diving deep
June's jobless rate clocked in at an exceedingly high 9.2%, as reported by the U.S. Bureau of Labor Statistics. Hiring by American employers was the slowest it's been in nine months.

In fact, the addition of 18,000 jobs in June was the lowest since September 2010. High unemployment is definitely an indicator of the economy's ordeal. It also raises questions about business growth in general. Unemployment adversely affects consumer spending, which results in lower demand for goods and services. This results in a fall in overall output.

In such circumstances, most companies would cut down on expenditures. Some resort to layoffs. Let's take a look at how different industries are grappling with the mayhem, and which one is poised best to dodge it.

The losers
The U.S. banking industry seems to be struggling because of stringent regulations and underperforming business segments. Banks are doing away with redundant positions in great scale to make optimal use of capital.

American banking giant Goldman Sachs (NYSE: GS  ) is planning to cut around 230 jobs for "economic reasons." The bulk of its recent hiring has been international.

Bank of New York Mellon (NYSE: BK  ) intends to slash 124 jobs in its treasury services operations. On exiting its subprime mortgage business in July 2010, Wells Fargo (NYSE: WFC  ) announced plans to shed 2,000 positions.

In spite of growth in fabricated metal products, the basic materials manufacturing industry's overall growth was offset by a loss of 5,000 jobs in wood products. Surprisingly, the construction industry, which has lost 474,000 jobs since 2009, looks a bit more stable at the moment.

Residential and commercial building companies, however, witnessed a drop of 15,900 jobs from a year earlier. As Meritage Homes (NYSE: MTH  ) VP of Investor Relations Brent Anderson said, "It is tough to add people when our sales aren't increasing."

The gainers
However, all is not lost. In fact, there are quite a few bright spots across industries. Jobs in health care continued to edge upward, for example. The industry added 14,000 jobs in June. It's added an average of 24,000 jobs per month over the past 12 months.

The hospitality industry, which is still recovering, added 34,000 jobs in June. Restaurants experienced 2.1% job growth from a year ago. Food services have added about 216,000 jobs since December 2009.

Fabricated metal products in the manufacturing industry edged up by 8,000 jobs. Strong demand from aerospace and medical equipment makers helped employment grow by 6% from last year.

The numbers show that there's one industry that is blatantly defying the unemployment trend by an even greater degree. Take a look.

The winner
The U.S auto industry seems to be on a hiring spree, which is pretty shocking. These companies seem to have bounced back from the brink of collapse in a big way.

While they had to make tough layoffs in order to keep themselves in business, the worst seems to have passed for the automotive industry. Automobile giants such as General Motors (NYSE: GM  ) and Honda (NYSE: HMC  ) seem to have finally reached a turning point in their industry cycle and now seem oriented toward growth. While GM is hiring 2,500 workers, Honda plans to recruit 1,000. German carmaker Volkswagen recently hired 2,000 workers and expects its new plant to generate another 9,000 spinoff jobs.

Automakers are improving on the earnings front as well. Car sales rose by 1.2 million in 2010, as compared to the preceding year. Strong demand for its fuel-efficient hybrids enabled Ford (NYSE: F  ) to report its highest first-quarter profit in nearly 13 years. GM reported a total profit of $3.2 billion. Ohio-based tire maker Goodyear (NYSE: GT  ) has been benefiting from its North American tire segment, which accounted for 44% of its revenues last year.

The Foolish bottom line
Despite the slump and greater numbers of job losses to come across the economy, the auto industry has shown resilience and projects a positive outlook. Industry analysts expect the market to increase by nearly 33% in the next four or five years.

The fact that these automakers have resumed production and witnessed growing sales reflects increased consumer confidence and pent-up or growing demand -- at least, in some parts of the world. More importantly, the companies are playing an important role in creating job opportunities, especially at a time when other companies have layoffs on their minds. President Obama said during a speech responding to the latest round of jobless figures that the employment report highlighted a "big hole to fill" in replacing the jobs lost. They need to be filled soon. And automakers seem to be leading the way.

Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article. The Motley Fool owns shares of Ford Motor. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of General Motors, Meritage Homes, and Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 24, 2011, at 4:24 PM, MHedgeFundTrader wrote:

    Where are all these jobs going to? You guessed it, China, which by my calculation, has imported 25 million jobs from the US over the past decade. You can also blame other lower waged, upstream manufacturing countries like Vietnam, where the Middle Kingdom is increasingly subcontracting its own offshoring.

    Alternative energy and biotechnology are two possible drivers for a new economy. Unfortunately, the last administration did everything it could to stymie progress in both these fields, coddling big oil so China could steal a lead in several alternative technologies, and starving stem cell researchers of Federal cash, ceding the lead there to others.

    While the current crop of politicians extol the virtues of education, the reality is that we are dumbing down our public education system. How do we invent the next “new” thing, while shrinking the University of California’s budget by 20% two years in a row? If my local high school can’t afford new computers, how is it going to feed Silicon Valley with computer literate work force? The US has a “Michael Jackson” economy. It’s still living like a rock star, but hasn’t had a hit in 20 years.

    China can have all the $20 a day jobs it wants. But if it accelerates its move up the value chain, as it clearly aspires to do, then America is in for even harder times. I’ll be hoping for the best, but preparing for the worst. How do you say “unemployment check” in Mandarin?

    The Mad Hedge Fund Trader

  • Report this Comment On October 24, 2011, at 4:46 PM, WikiCPA wrote:

    ^As China's middle class grows, how long will the cheap labor last in China? How long until they subcontract manufacturing in even lower standard countries (in Africa? Korea?)

    It is a matter of time before China becomes the next United States. Our education system still is on top, minus a some dollars from its budget, and for some reason everyone thinks it will bring us from 1 to 29. Everyone on this Earth still wants to send their child to a US university, the problem is that we must educate our own citizens with skills that'll keep us sustainable. No more manufacturing, all talent and service. We are teaching so many international students in higher education, only to have them bring their smart brains back to their home country.

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