by Gary H. London
We are now bouncing along the bottom of the economic cycle, worrying — as if it matters — whether the economy is now mired in a “double dip” recession or just continuing along its slow, miserly pace presumably to recovery.
The momentum for recovery is low.
The idea of a double dip is the loose statistical idea that suggests that when the GDP slows to negative growth after a quarter or two of positive growth — a recession followed by a short-lived recovery, followed by another recession — it takes the shape of a W. It has now become popularized in the media as some type of special event — when it is actually not.
This is not turning out as the “summer of recovery,” as many had predicted.
The unemployment rate is stubbornly high, and it is likely that that rate will come down very slowly. The job situation has been a continued disappointment and showing little signs of improvement. Many of our industrial centers are being ravaged where the unemployment rate is considerably higher than the national average of nearly 9.5 percent. An underlying concern is the underemployed rate, which measures those who have taken jobs below their qualified and customary level of work skills and pay. This number approached 18.4 percent, and 28.4 percent among those ages 18 to 29. Overall underemployment peaked at 20.4 percent in April.
Big Transition in Jobs
This recession has put front and center the big transition in our economy, which is expressing itself in a structural adjustment.
A great many jobs that have been shed during the three-year recession are not going to return. Many people who lost their job will simply not have a job to come back to.
For instance, my firm monitors construction. New-home sales have trended up nationally, inching higher in July, continuing their recovery after the sharp plunge that occurred in May after the expiration of the homebuyers’ tax credit at the end of April. New-home sales now are trying to find an equilibrium level supported only by the underlying fundamental factors.
But that new equilibrium level is certainly going to be a short-term and midterm reduction in construction. Housing will be slow to come back, and will no longer be the “driver” to economic recovery.
The economy is slowly restructuring in a way that will mean that many of these old jobs are obsolescent. They are no longer required because their sector is shrinking; or they are being “replaced” through technology.
Now, by this I do not mean that you should necessarily have the visual of a robot taking the place of a human in the assembly line rather, the growth industries are primarily driven by technology. The new companies that have emerged are utilizing the efficiency that drives the sector, coupled with the fact that the humans who are being hired have different and more appropriate skills, and those possessing these skills are mostly young adults.
There is a demographic shift going on here: Baby boomers are out, Gen Y is in. While it is clear that the great numbers of Gen Y — people born since 1983 who are in their 20s — have found the first-time job market excruciatingly slow to accommodate their new careers, as the current numbers indicate, in time they will be the winners.
The great crisis is that their parents, people born since 1949 and north of 50 years of age who participated in the “old” economy are increasingly finding that their old job is gone, and that it will be frustrating to retrain.
The economic crisis also expresses itself geographically. The short-term big losers are the middle and old southern parts of the nation. They are the places where the older industries mostly reside and where the job skills are settled in the vestigial economy.
The coastal regions, both East and West, are trending as the capitals of the technology companies, service and other sectors that will lead the recovery and the economic restructuring of the nation.
There are clear opportunities on the coasts.
But eventually, the high costs of the coasts will present opportunities in the middle.
Land is cheaper: New industry requires land to build “horizontal.” The coastal markets mostly do not have this land to spare. The middle markets — from inland California, to the Midwest, to the Deep South — do. After all, the remaining land mass in America is large enough, with only an estimated 5 percent of it currently urbanized.
Labor will relocate (many will cite the “high quality of life” effect present in small, Midwestern communities). There is a large swath of households willing and able to move, and they will. The quality of schools, lower crime rates, and the perceived slower pace of small-town life will drive this trend just as it did in the mid-50s when the suburban revolution started.
Cities and states will welcome new companies and streamline the process of placing these new and expanding companies in their communities. There has always been intramural competition between states and regions.
The historical phenomenon that also is taking place is that most companies can locate anywhere. Most modern companies are not tied to a particular region, consumer confluence or natural resource. They are footloose, and they can go where they see the bargain or the best opportunity.
Moreover, there is a “clustering” phenomenon that attracts a density of firms of one kind, such as computer software (Silicon Valley and Seattle Metro); information technology (San Diego’s Sorrento Mesa); entertainment (Hollywood); life sciences (Boston and San Diego); and media (New York). The efficiencies of these clusters are important and will be maintained.
So, too, will these lucky regions grow around the presence and expansion of these key clusters.
There is opportunity everywhere, yet these processes will undoubtedly play out over time.
It is “time” that is the operative word. Many are mad at our presidents (current and past), mad at the government in general, and mad at the heads of the companies who have failed us. None of these players possesses the magic elixir to recovery. Yet all must participate in working on and creating the right conditions for the solutions.
Ultimately, the solution to our economic success lies within us. As Joel Kotkin put it in his recent book “The Next Hundred Million”: America’s long-term future underestimates the nation’s Sokojikara, the self-renewing power generated by its unique combination of high fertility, great diversity, and enormous physical assets.”
We have to believe that the nation will recover, and act accordingly. On that note, I am ultimately quite optimistic.