Predictions of U.S. Slump May Miss Mark
Gloom seems fashionable. Many economists frankly see a recession ahead with unemployment rising from 5.2% to well over 6% of the work force--an additional 1.3 million jobless. The August employment figures, due from the Labor Department on Friday, may mark the start of steadily rising unemployment, economists say.
But facts and the opinions of U.S. employers disagree with the fashionable gloom. And other indicators of the world economy also paint a brighter picture for the United States.
On employment first of all, Mitchell Fromstein, chairman of Manpower Inc. the Milwaukee-based temporary help firm, says “I could be wrong, but I don’t see the unemployment rate rising over 6%.” Manpower’s business is up from this time last year--meaning offices and factories have more work to do than they can handle with present staff. At the every least, that’s not an indicator of layoffs ahead.
“I don’t think unemployment will get above 5.6% of the work force,” says Fromstein, who says the present period doesn’t feel anything like the early 1980s, when the economy fell into recession and 10.5% of the work force was unemployed.
Today, there are not millions of young people entering the labor force every year. In fact, the labor force of 127 million is growing more slowly than at any time since the 1950s. And there is a widespread fear in U.S. business that skilled people will be in short supply in the 1990s. So many companies are willing to hire even in bad times, and are unwilling to lay off. Of 15,000 firms responding to a Manpower survey of hiring intentions, 99% say their plans to fill jobs haven’t changed because of gloomy economic forecasts or the Middle East crisis. “Companies fear letting someone go and having to rehire six months from now at higher pay,” says labor economist Robert Topel of the University of Chicago.
The present period “promises some difficulties for companies with high debt,” adds economist Sanford Jacoby of the UCLA Institute of Industrial Relations. It could mean staff reductions at department store chains such as Macy’s, which took on a lot of debt in a management buyout in the 1980s.
But unemployment will be more selective and regional than widespread. And that fact, coupled with other positive factors, should improve consumer confidence and the outlook for retail sales at Christmas.
Gloom is not without cause, however. In the United States, small business is having great difficulty raising capital. Bankruptcies are up, new business starts are down. Furthermore, the economies of Europe and Asia are slowing, too amid worries about the rising price of oil. Stock and bond markets around the world generally have been down.
On the other hand, the value of the U.S. dollar, which had fallen steadily against the German mark and other currencies, has begun to recover.
It may seem a great leap from consideration of U.S. employment rates to the vast international markets that trade perhaps $1 trillion a day in currencies, bonds and stocks. But the two are connected because the international markets, more than the Federal Reserve, are the true arbiters of interest rates in the United States, and every other country.
And just at the moment, there is a subtle shift in those markets toward favoring the United States, which could mean more capital available for job creation in this country. “It’s a case of shifting expectations,” says a major institutional investment manager, “the United States is looking better while Europe and Asia are looking worse.”
Until recently, the global markets had looked upon the U.S. economy as the laggard of the early ‘90s, compared to Western Europe, headed for economic unification by 1992, and rapidly growing Japan and Asia. Now there are doubts that Europe will be quite so fortunate, with oil prices up and Eastern Europe slated to take time and capital to rebuild. Similarly, the Tokyo stock market has taken a beating this year, reflecting the international markets’ concern over inflation.
So the U.S. economy is not the only laggard. “The party’s over for everyone,” says economist John Rutledge, of Claremont Economics Institute. The belief that the 1990s would be a time of low interest rates and strong economic growth is fading. Now the outlook is tougher times and relatively high interest rates.
However that doesn’t mean recession in the U.S. economy, says Rutledge. “I doubt that the economy will ever go negative for a quarter,” he says. “Companies will find it hard to raise money, and so they’ll put a premium on using it efficiently.”
Efficient use of capital promises a lot of things in the years immediately ahead--the failure of weak companies to be sure, but also a demand for business investment and profitable returns to that investment.
The outlook, whatever the economists say, is not for recession.
