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Will 2011 be a turning point for the economy?

With much of the public expecting so little from the economy, the mood could easily brighten if the job market were to rack up a few months of decent numbers.

December 26, 2010|Tom Petruno | Market Beat

Yet U.S. nonfarm employment remains 7.4 million jobs short of the record high of 137.9 million people on payrolls in December 2007. So far this year, net job creation has totaled just 951,000 positions.

Many economists, though dead wrong about job growth in 2010, believe that 2011 will be the turning point. They are betting that plenty of company owners and managers can justify adding staff with sales reviving and with a key reason for not hiring — uncertainty about the tax cuts — now resolved.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, predicts that once hiring kicks in, it will be "pretty much everywhere [in the economy] because the losses were so broad" during the recession.

Wishful thinking? Maybe. But at many companies, the outlook for staffing has definitely brightened.

Among chief executives of major U.S. firms, optimism about the economy is at its highest since 2006, according to the Business Roundtable. The group, which surveys its CEO members quarterly, found in the fourth-quarter survey that 45% expect their U.S. employment rolls to increase in the next six months, up from just 19% a year ago.

Importantly, the mood also has improved among smaller businesses, a crucial engine of job creation.

The National Federation of Independent Business said its optimism index gained 1.5 points to 93.2 in November. Although still depressed by historical standards, the index was up for a fourth straight month to its highest reading since December 2007.

Saunders Manufacturing, a Readfield, Maine, company whose 100 employees produce plastic clipboards, aluminum ring binders and other specialty office products for sale here and abroad, counts itself in the ranks of companies that are "on the cusp" of hiring, said CEO John Rosmarin.

After the company cut employees' average workweek to 32 hours in 2009, many workers this year have been restored to 36 hours and some to a full 40-hour week, he said.

"If business picks up from here, we're going to have to add people," Rosmarin said.

What's more, the company has been relocating some of the production work it was doing in China to its U.S. plants because of rising labor costs in the fast-growing Asian economy, he said.

"It's still a little more expensive here, but China is going to be getting more expensive" as the country's standard of living rises, Rosmarin said.

Yet even as businesses sound more upbeat about the economy, a large swath of Americans aren't buying it. A Pew Research Center poll of 1,500 adults this month found that 48% believe that a recovery is "a long way off."

Asked about the year ahead specifically, 55% said they thought it would be better than 2010 — but that was down from the 67% who said in January that they expected 2010 to be better than 2009.

With much of the public expecting so little from the economy, the mood could easily brighten if the job market were to rack up a few months of decent numbers.

LaVorgna, who thinks the economy will add an average of 200,000 jobs a month next year, said that level of growth could have a cascading effect by encouraging employers on the fence about hiring to push the button.

"It's a confidence game," he said. "Someone moves, and then someone else moves."

That is what the Fed is hoping for. Bernanke's legacy now is tied to pulling unemployment down, although it almost certainly will be a slow process.

As for critics who say the central bank is about to inflate another economic bubble by keeping money too cheap for too long, the Fed clearly has made a choice: It would rather take the chance of facing a future bubble and higher inflation than risk allowing the economy's current momentum to reverse and fuel a new downward spiral.

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