It wasn't a bad year, 2010. Stocks came back. Earnings came back. GDP came back. Sales came back. Everything, it seems, got better.
Everything but jobs, that is. They remained in the gutter.
Now what? Does 2011 hold any hopes for the millions of unemployed? No one knows. No one ever does in economics. But here are a few things to think about.
First, some basic mechanics. One of the most important aspects of the labor market is that we need to add about 120,000 jobs every month just to keep up with population growth. And as confidence improves and more people start looking for jobs, the size of the labor force rises. So adding jobs -- even a lot of jobs -- doesn't necessarily bring down the unemployment rate. The economy created about 1 million jobs last year, yet the unemployment rate actually increased. Good chance 2011 will bring more of the same: job gains, but a stagnant unemployment rate (or something like it).
What might create job growth? That's never clear. Job growth inevitably returns after recessions, but never from where you think it will. New industries come out of nowhere; old ones revive; booming ones die. Rather than fruitlessly trying to forecast job growth, I think we should focus on factors currently holding the job market back.
The first is the most obvious. Businesses are shellshocked. The scars from 2008-2009 are deep. You can see this in the record amount of cash businesses are hoarding. There's a hesitation to invest and expand.
There are two ways to look at this phenomenon. One, you can say businesses cut too many workers out of fear of an apocalypse that never materialized. They're too lean now, are working existing employees beyond reason, and will soon be forced to add more staff. Productivity growth backs this argument up. After surging in 2009, productivity growth tapered off greatly in 2010, suggesting that businesses have wrung as much out of existing workers as they can. Good news for the unemployed, thought goes.
Another way to look at it is to believe that the recession has taught businesses how to make do with less. They realized some jobs were redundant, that they didn't really need a secretary, or that TurboTax works just as well as a CPA. These newfound efficiencies might stick around even as the economy recovers. Not a recipe for a quick jobs rebound.
I tend to lean toward the latter view. The reason why, besides the efficiency view, is that so many jobs created during the past decade never should have existed in the first place. Subprime mortgage brokers. Realtors. Construction workers. Car dealers. Jewelry dealers. This schmuck. Too many jobs were fostered by nothing but a decades-long credit bender and are now gone for good (and good riddance). A recent Rutgers University study found that 41% of those who were unemployed in 2009 and now have a job found work in a new industry. It takes time for these people to retrain and make new connections. It's not the kind of thing where old jobs bounce back once business picks up. The economy has, in a sense, rebooted.
Another factor holding jobs back is housing. About one-quarter of homes with mortgages are underwater. Owners of these homes face two practical choices: Stay put, or walk away and default on the mortgage.
Many are indeed choosing the latter. But those who choose to stay in their underwater homes can't pick up and move where the jobs are. They're stuck. Job openings have bounced back in the past year, but many of those positions have remained vacant. Some of this is due to the previous point: applicants just aren't experienced for the jobs that are available. But lower labor mobility is also keeping potential job growth in check.
The final factor to think about is government jobs. The private labor market actually bounced back in 2010, and that momentum should continue this year. Dollar General (NYSE: DG), for example, just announced it'll add 6,000 jobs. Ford (NYSE: F) is adding 1,800 workers in Kentucky. But these gains are undermined by a continued gutting of government jobs. Last time I ran the numbers, the government was shedding one job for every three the private sector created. That trend should continue. State and local governments are a mess; revenue is falling and pension obligations are growing exponentially. Most legislatures can't agree on what day it is let alone what to do about deficits. At the federal level, the incoming Republican House majority has made it clear that slashing federal spending will be priority number one. Many cheer this from an ideological perspective, but the tough truth is it'll be a drag on jobs. One man's pork is another man's 9-to-5.
Add it up, and I think the best you can say about 2011's job market is that things have stopped getting worse. Maybe that we're slowly moving in the right direction. It's just going to be slow. I'm not holding my breath for meaningfully lower unemployment in 2011.
How about you?
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Fool contributor Morgan Housel doesn't own shares of any of the companies mentioned in this article. Ford Motor is a Motley Fool Stock Advisor selection. 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.
