Hoping For Change

economy.JPG

The world was happy to wave goodbye to 2009 while hoping 2010 would bring down unemployment and pump up salaries. But what can you really expect from the new decade?

U.S. News & World Report has put together a list of four things we can expect from the business world. President Obama has said that the economy has been rescued but jobs are still being cut, so will the actions of the coming year speak louder than our Commander in Chief promises?

Their first prediction is that Washington will continue trying to create new jobs and will most likely do this by lowering taxes and creating more incentives. President Obama says his economic team is also looking at investments in roads and bridges, green energy and tax cuts to small businesses. While not calling any of these ideas a stimulus plan Senate Majority Leader Harry Reid says the Democrats will be taking up a bill aimed at job creation. Keep reading to see the rest of the list. And while some of the news is good it might not be a bad idea to update your resume and look for a back-up plan.

From U.S. News & World Report

Washington will keep trying to create jobs: The gross domestic product climbed 3.5 percent in the third quarter, while payrolls continued to fall. This is no doubt proof of the rule that employment is a lagging indicator. But some economists see it as particularly lagging at this point. The Conference Board's employment trends index, which takes into account eight labor market indicators, rose in October. It was the second consecutive month of growth. (September's rise had been the first since January 2008.) The index numbers suggest job losses would end by early next year, and "that's a very optimistic statement compared to the consensus at this point," says Gad Levanon, senior economist at the Conference Board.

When the private sector isn't creating jobs, government tends to step in by lowering taxes, creating incentives, or spending to spur hiring. President Obama signed a bill providing another federally funded unemployment extension Friday and said he would likely do more: "My economic team is looking at ideas such as additional investments in our aging roads and bridges, incentives to encourage families and businesses to make buildings more energy-efficient, additional tax cuts for businesses to create jobs, additional steps to increase the flow of credit to small businesses, and an aggressive agenda to promote exports and help American manufacturers sell their products around the world."

The deficit will begin to weigh on Washington's efforts to create jobs: While the president laid out a lengthy menu of possible job-creation tools, he is receiving no small amount of pressure to begin tackling the deficit. Federal Reserve Chairman Ben Bernanke is the most powerful voice among many pushing Obama in that direction. The president says that he is beginning to look at the fiscal 2011 budget and that he understands the nation's long-term debt is a problem. While unemployment is clearly a nearer-term problem, deficit concerns will weigh on each decision. Countries that buy American debt could begin to demand higher returns. To pay higher yields on debt, the government would be forced to raise interest rates, a situation that could endanger the fledgling recovery.

Unemployment will peak next year: By and large, economists do not believe the unemployment rate will tick downward in November or December. Instead, they expect a peak sometime next year. Even the Congressional Budget Office is anticipating an average unemployment rate of 10.2 percent in 2010 and about a percentage point lower in 2011.

Unemployment will likely fall by the end of next year—or even toward the middle of next year—but even the most bullish economists do not anticipate major drops in the unemployment rate. Brian Wesbury and Robert Stein of First Trust Advisors are expecting a drop of a full percentage point. The Conference Board's Levanon says he expects the unemployment rate to remain elevated over the next several years.

Productivity will, eventually, help boost employment: Productivity grew at a 9.5 percent annual rate last quarter. Americans were working hard. Labor productivity is measured by dividing output by hours worked. In the third quarter, output rose by 4 percent while the number of hours worked fell by 5 percent. This can make people nervous, because employers are doing more with less and would seem to have no incentive to increase their payrolls. But productivity numbers during downturns "do all sorts of strange things," says Dean Baker, codirector of the Center for Economic and Policy Research. And they can look very good after employers cut payrolls.

A longer purview shows productivity to be a very positive thing for employment. Productivity allows more to be produced with less capital. "The increased productivity of capital raises the supply of other kinds of capital that contributes to a growth in the earnings of workers," says Gary Becker, an economist at the University of Chicago. "In the very short run, productivity improvements are associated with rising unemployment and reduced employment, but in the somewhat longer run it will raise the demand for workers and earnings."