Most of the narrative surrounding the latest jobs report has been that the number was mildly disappointing, but nothing extraordinary. That may be right, but it’s missing the point—there is something extraordinary here: we are still seeing such anemic job growth despite GDP growth that is expected to improve, excess corporate cash and a significant need for corporations to invest.
The March employment number reflects the usual rate of hiring during expansionary periods for the past 25 years, of about 200,000 jobs a month. But this number doesn’t account for population growth, strongly suggesting that job growth is far below where it should be.
There are two distinct but closely related problems. First, the benefits of Fed policy have reached their limits. Although quantitative easing is riding into the sunset, it overstayed its welcome and has distorted asset prices and capital allocation decisions profoundly. Companies may be sitting on a lot of cash, but due to uncertainty over organic economic growth levels and aggregate demand, they are wary of using it to make more permanent investments in growth.
Second, there are structural—not cyclical—obstacles to higher employment. The economy is growing in a way that clearly doesn’t require the same number of jobs as in the past. Technology, innovation, job skills mismatches and demographic trends continue to weigh on job growth.
But as we’ve seen, Fed policy is no longer greasing the economy, as it did during the crisis, and it cannot solve these challenges. In other words, hiring won’t accelerate without the benefit of fiscal policy help in the form of training/education, research and development tax credits, or direct capital expenditure or hiring incentives.
Will those policies materialize? It’s difficult to say—because if you think monetary policy is unpredictable, fiscal policy is a whole other ball of wax. But pressure on companies to spend their excess cash will begin to increase, and investors should watch for activists to begin trying to extract this precious resource.
Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Fundamental Fixed Income, is Co-head of Americas Fixed Income, and is a regular contributor to The Blog.