Financial Watch

Its no secret employees are leaving their jobs more often than in recent years. What is surprising is how unconcerned most employers are about the looming labor shortage. Pay raises continue to fall short of inflation for the majority of workers while executives continue to loot their companies for ever larger pay and bonus packages. Workers are slowly gaining the upper hand over employers in the job market. This should continue to become even more apparent over the next year, particularly for skilled workers. Unemployment at 4.7% is at a level that historically has signaled full employment. However, the Internet has improved efficiency in the labor markets and allows for unemployment to fall further than in previous economic cycles before triggering higher wages.

Several factors in the labor markets are converging at the same point. In the 1990’s strong demand for technology drove the longest economic boom in history. Demand for top talent capable of managing technology started to pick up last year. Microsoft, Google, along with numerous other technology companies recognizes the need to invest heavily in research and development to keep ahead of their rivals. What is different this time around is the importance of sustainability. We do not expect to see a return to the days where anything with a dot-com was attractive, but technology will once again be the catalyst for stronger economic growth.

A slower stock market has diverted money in other areas of asset classes. Venture capital has seen more than its share of cash comes its way. A ton of money is waiting to be deployed to small start-up companies with the hope of becoming the next huge initial public offering (IPO). Silicon Valley has seen a pronounced strengthening of its job market after lagging during the initial part of the economic expansion. Small businesses comprise most of our nation’s job creation. Silicon Valley should be looked at as a leading indicator for our nation. In time, venture capital money will increasingly be deployed across the nation and fuel the robust job gains we got used to in the tech boom.

Capital spending is starting to bounce back from its anemic levels. Consumers fueled economic growth during the initial years of this cycle in 2003 and 2004. However, it is growth in the business sector that creates high quality jobs. Capital spending grew a little above 1% between 2001 and mid 2005 on an annualized basis. Strong economic growth is being to force companies to reinvest in order to meet increased demand. Further, China and India show no signs of slowing down. Our trade gap is growing, but at the same time exports are growing at a double-digit clip.

The final force converging upon us is the looming retirements of the Baby Boom generation. Our labor force is growing at the slowest rate in many decades. This means that while job creation is lackluster compared to other expansions, it is still sufficient to cut into the ranks of the unemployed. Companies have been slow to respond to the changing labor market. Many managers are seeking to fill positions expecting to see the numerous candidates found a year earlier only to see few qualified candidates bother to apply. So far few have been willing to bring on a job seeker that can be brought up to speed with some training. As job openings pile up, we should soon begin to see employers be less picky about who is brought onboard.