Economist’s View: Get Ready for a Robust Job Recovery

We believe the United States will gain 3 million to 3.5 million jobs a year in each of the next three years.

We believe the United States will gain 3 million to 3.5 million jobs a year in each of the next three years. This rate of job creation must be viewed in the context of the nearly 8.4 million jobs lost during the recently concluded recession
and the 1.8 million jobs normally added annually to the U.S. economy.

We believe that just as the standard economic models failed to predict outsize job losses, they are similarly incapable of predicting an outsize recovery. This is because these models are based on centrality and momentum, making it almost impossible to predict extreme ups and downs, even though notable ups tend to be followed by notable downs (and vice versa).

We project that we can add 3.3 million jobs for each of the next three years, consisting of the normal 1.8 million new jobs associated with the additional 3 million people entering the economy plus 1.5 million of the 8.4 million lost
jobs being recovered. This is hardly a rapid return of the lost jobs, as three years from now 45 percent will still remain to be made up.

Many of those who lost their jobs were highly productive individuals who took pregnancy leave, went back to school, retired or died. Employers did not replace those workers in the face of panic. However, as panic has receded and
profits rebounded over the past six quarters, employers will bring these positions back online and they will be counted as newly created jobs.

We believe that 3 million to 3.5 million jobs a year for the next three years is almost a certainty, as otherwise the U.S. economy must register annual productivity growth increases of about 4 percent. This may be achievable
for a year but does not pass the smell test of long-term achievability.

The prevailing U.S. business model over the past two years has been that “the beatings will continue until morale improves.” That is, employees did whatever was required because they had no alternative. But as profits have rebounded over the past 18 months and demand has grown, more employees are needed, lest workers refuse to endure further beatings.

U.S. real GDP is approximately the same size today as it was in early 2008. Historically, if the economy does not grow, there ensues a loss of approximately 1.5 million to 2 million jobs. Thus, we lost at least 6.2 million more
jobs than normal. These excess lost jobs will be relatively easy to regenerate, driven by the growing sectors of healthcare, pharmaceuticals and education.

Ironically, our audiences generally greet our forecast of 3 million to 3.5 million new jobs for each of the next three years with great skepticism, as most believe that the U.S. unemployment rate will still be approximately 7 percent
three years from now. But in order for the unemployment rate to be at that point in three years, we must add 3 million to 3.5 million jobs each year for the next three years! That is to say, we expect a robust employment
recovery resulting in a very mediocre job market.

This article first appeared in the August issue of Commercial Property Executive.