“Hunker down. We’re in for a long period of stagnation.”
That was the admonition of Dr. Ken Mayland, president of Pepper Pike, Ohio-based Clearview Economics, in his closing keynote presentation delivered at SUR/FIN 2011 in Rosemont, Ill., earlier this month. In sharp contrast to his more optimistic forecasts offered at SUR/FIN 2009 and 2010, respectively, the renown business economist sounded a more cautionary note regarding the state of the recovery in general and, more specifically, job creation in the United States.
Throughout his presentation, which was peppered with statistics, charts and schematics illustrating a host of variables impacting the economy, Dr. Mayland provided the justification for his somber outlook.
Following are a few “low-lights”:
Subpar employment growth. The U.S. economy generated only 54,000 jobs in May, with—for the first time since the recovery began—manufacturing employment trending downward (off by 5,000 during the month). May’s job report was down dramatically from April, which showed payrolls increasing by 244,000. But April seems like such a long time ago—a month in which manufacturing employment increased by a solid 29,000 jobs.
“We were cruising along, and then things started to slow down,” Dr. Mayland said. “We have been producing private sector jobs for more than a year—just not cyclically what we’re used to. At this juncture of the recovery, job growth should be in the vicinity of 400,000. We’re coming up way short.”
Lack of overall confidence. In Dr. Mayland’s mind, the lackluster employment numbers reflect a challenge that goes beyond simple supply and demand trends. Rather, he noted, it’s indicative of skittishness among manufacturers and other entities when it comes to allocating funds for hiring and/or training. Those who have survived the recession, he notes, have simply learned to do more with less.
Increased productivity aside, there’s an emotional aspect to their hedging. “Employers say the cuts they made at the height of the downturn were just too painful," and that they dread going through that again if they resume hiring prematurely, Dr. Mayland surmised. “Companies are simply gun-shy about hiring due to the swings from 2008 –09.”
Stagnation in wage growth. Jobs are only a piece of the picture, Dr. Mayland notes. Drill down deeper into the reasons why consumers don’t feel entirely comfortable with spending more of their hard-earned cash—particularly on durable goods—and you’ll uncover other issues, namely stagnating wages and shorter work weeks. (Q2 consumer spending—about 70% of GDP—got off to a slow start, he notes, adding that another quarter of below-potential growth is likely.) “It’s the worst consumer spending growth seen in 60 years,” he said. “Stagnant wages are holding back earnings, which is having a direct impact on consumer spending. At the same time, inflation has gobbled up even nominal increases in wage growth. The unemployment rate is up even as inflation is accelerating. That’s stagflation.”
Housing: A drag on the economy. With housing starts down year over year in three out of four regions, units “under construction” off 0.9% in April, and lingering issues with foreclosures, the lumbering housing sector and its impact on jobs and the overall economy remains a major concern. Even with units completed up by 4% in April, Dr. Mayland expects that we won’t get much support from the housing sector. One bright spot: Non-residential construction is making a climb from losses to small increases, he said.
What the economy needs right now, Dr. Mayland believes, is what he calls “inspired leadership” on a number of critical issues: corporate tax structure, cost of health care, more business-friendly regulations, and high oil prices, among others.
“I just don’t see the spark that’s going to give the economy the boost we need,” Dr. Mayland flatly told attendees. “The cyclical push from inventory rebuilding has run its course, the momentum of business has changed, and we’re now entering the malaise.”
No sugar on this one, folks.