Private Sector Optimism Surges As Government Austerity Rises

The National Association for Business Economics puts out a periodic review of how corporations view their prospects. The data shows the level at which companies are hiring or firing workers. The December data was very encouraging. “The number of firms expressing positive hiring plans is at a level not seen in over a decade—a sign of improving labor-market dynamics,” the NABE wrote in its Industry Survey January 2011. The jobs growth comes amidst an increase in government austerity that could push tens of thousands of federal, state, and municipal workers out of work. It was only this weekend that the US Postal Service said it will review the status of more than 10,000 post offices. New York State may cut 10,000 workers this spring. Plans in California and several other states are similar.

The private sector increase in employment may offset government layoffs. There is reason to be hopeful. The NABE data shows a very strong recovery in business optimism which, if accurate, could drive the addition of millions of jobs in the US this year. “Employment continues to improve, with 34% of firms reporting larger workforces compared to only 13% a year ago. The share of firms cutting jobs shrank, from an average of 13% over the past three quarters to 6% currently,” the association reports. Plans for capital spending are also much higher which should push up job creation even more rapidly.

Government “downsizing” threatens the economy the way that corporate cuts did two years ago when the economy was shedding hundreds of thousands of jobs each month. This moved the national unemployment rate to near 10%. Many experts including Fed Chairman Ben Bernanke believe that the jobless rate will not return to “normal” levels of 5% to 6% for another three years.

The federal government may make decisions which are as damaging to joblessness as the deep trouble in states and cities. The battle over the deficit cap may force several agencies to shrink. The effort to cut $100 billion out of annual budget expenses will certainly cause firings, even if that goal cannot be reached.

The private sector has once again become the engine of the economy, but it may not be strong enough to pull GDP higher by even a modest rate.

Douglas A. McIntyre