Wednesday, January 12, 2011

Where the Jobs Are: The Right Spots in the Recovery

By Bill Saporito 

Kent Niederhofer can't find enough mechanical engineers to work for him — in southeastern Michigan. You know, where Detroit is, with its 13.3% unemployment rate. Niederhofer is president of the American branch of Ricardo, an engineering consultancy that designs the power trains of some of the coolest stuff around: Bugatti sports cars, huge wind turbines and unmanned aerial vehicles. "We are doing rocket science every day," says Niederhofer. "It's just not on rockets." So Ricardo got a little desperate, renting a billboard to place a help-wanted ad that featured a picture of a sexy-looking sports car, the tagline "Why you became an engineer" and a Web address for job seekers. He calls it engineer porn.

General Electric is also trying to poach some Motown engineers to staff its expansion at Appliance Park, in Louisville, Ky., and three other locations where it is establishing "centers of excellence" in refrigeration technologies. The company is in the middle of a $1 billion investment in its appliance sector that will create 1,300 jobs at all levels over the next four years. GE has repatriated — insourced, if you will — a refrigerator-manufacturing line from South Korea (thanks in part to a new union deal and a weaker dollar that makes U.S. labor more competitive) even as it waits for the housing market to rebound enough to restore demand for fridges. "We think it's going to be a slow crawl back over the next several years, which, for us, is why we are investing now," says James Campbell, CEO of GE Appliances & Lighting.

A Turning Point, Maybe

Flexible, outwardly focused companies such as Ricardo, GE and Deloitte are the main force behind an optimistic and underplayed fact: last September, the U.S. economy finally stopped bleeding jobs. And now job creation may be at a crucial turning point. The ADP National Employment Report recorded a surprising 297,000-job jump in private-sector employment in December. Manufacturing activity is up, retail sales are strong, and overall GDP growth is on track to be a healthy 3% this year. Inflation is still muted, and stocks are on a roll. It all bodes well for the Obama Administration's efforts to mitigate the 9%-to-10% unemployment rate that has hung for 19 months like a deadweight around the neck of the economy, not to mention the national psyche.

The Great Recession didn't merely cause cyclical job losses. It created an unemployment chasm. More jobs were lost in the 2007-09 recession, which officially ended in June 2009, than in the previous four recessions combined, says Nariman Behravesh, chief economist for IHS Global Insight. "It's a very deep hole that we are climbing out of. We lost something close to 8 million jobs. That's why it's going to take a long time — 2015 — to get to [an unemployment rate of] 6%." Indeed, the rate could even rise again, as people who left the labor pool — and thus don't count as unemployed — start to look for work again.

That 6% figure refers to what economists call full employment, meaning that people who want to work can find it (give or take time lost to layoffs or telling the boss to shove it). Knocking any kind of dent in the current jobless rate is going to require the net addition of at least 135,000 jobs month after month.

That's not happening — yet. But economists are revising their GDP growth projections upward, and if the conventional wisdom holds, that has to result in stronger job creation at some point quite soon. (Employment growth tends to follow GDP growth with a lag.) Companies are already sitting on mountains of cash because they increased productivity through layoffs and other efficiencies. They have the money to hire, but they need to see increasing sales to justify it. There's some evidence that consumers are finally opening their wallets. Christmas sales were strong. Given the stimulus coursing through the economy from the Federal Reserve's quantitative easing, the tax-cut extension and a 2-percentage-point reduction in the payroll tax, the retail therapy should continue into the new year.

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