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.