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Jobs Forecast: 2013-2014
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Jobs Forecast 2013-2014 - Bill Conerly

Posted By NIPA Headquarters, Wednesday, August 07, 2013
By Bill Conerly

Job growth should remain steady at a sluggish pace for a few more months, and then accelerate to a moderate growth rate, without ever being strong.

The employment forecast is important not just for gauging the strength of consumer spending, but also for the many companies that serve employers based on the job rolls. These include third-party benefits administrators, payroll processing firms and outsourced human resources departments.

My economic forecast anticipates low-to-moderate growth in the coming two years. One key advantage for the economy is its long-run tendency to growth. When I wrote that in a previous article, one commenter thought it was a pretty lame justification for the forecast. It's certainly not the only positive for the economy right now, but it warrants some explanation.

People want to work. We may grouse about the boss, we may have a bumper sticker about the joys of fishing, but most people want to work for the pay, as well as for the sense of accomplishment and the camaraderie. With a growing population, a growing workforce tends to boost the economy.

Companies are still investing in plants and equipment. Capital formation, although slower than it previously had been, still means that we have the ability to produce more goods. Furthermore, technology continues to increase our productive capacity. In the short run, it's possible for our economy to have more capacity than demand, but in the long run, supply creates its own demand, as Jean-Baptiste Say wrote.

Corporations and small businesses are earning solid profits now. Interest rates are low, which makes capital investment a good buy for many companies. The wonder is not that employment will grow, but that it does not boom.

The lack of the boom, however, is due to some pronounced negatives. Government policy has led to great uncertainty among business leaders. The Affordable Care Act is a significant source of uncertainty, but the federal government is still writing the implementation rules for Dodd-Frank financial reform, while the federal regulatory system is throwing new rules out to implement old laws on environmental protection and labor standards.

Even more depressing than federal policy uncertainty is lackluster expectations among business leaders. Optimism is on back order. There is probably more capital spending designed to reduce operating costs than to expand productive capacity. Companies are slow to hire permanent workers, though they have been more willing to use temps. The temporary-help sectors account for just 1.8 percent of all jobs, but it generated 8.8 percent of the job growth in the past year.

Despite the economic weaknesses, job growth will continue. Businesses probably cannot expand much without adding more workers, whether they want to or not. In the past six months, the economy has added just fewer than 200,000 workers per month. That's about half the pace we would expect in a normal recovery, and it's why the unemployment rate will is falling only slowly. Businesses serving employers might expect their underlying volume to rise by 1.5 to 2 percent in the coming year. However, that's not the whole story.

The Affordable Care Act, often called ObamaCare, throws two monkey wrenches into the employment picture. First, some businesses are cutting hours to keep employees on part-time status, eliminating the need to provide health care. That will probably reduce eligibility of these employees for retirement plans, whether defined benefit or defined contribution. The larger number of employees working shorter hours will, however, help payroll companies and the outsourced human resources providers.

The second monkey wrench is that some employees will face a hefty deduction for health care coverage, reducing their take-home pay. That will lead to dropping discretionary contributions to retirement plans. In short, some will say, "I have to pay more for health insurance so I'm dropping my 401(k) contribution.”

Rolling it all together, employee service providers won't see much volume increase in the second half of 2013 or into 2014, but there's hope for later years. The economy may well accelerate as some uncertainty fades away, and the effects of ObamaCare may dwindle over time. That's the optimistic side, but there's also a pessimistic side, in which European recession spreads while ObamaCare's impact worsens with time. The best strategy for a service provider is to have flexible plans, enabling the firm to expand or contract as dictated by the job market.

Dr. Bill Conerly is an economist who consults with companies on business strategy. He writes regularly for Forbes.com. For more information, visit www.ConerlyConsulting.com.  

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