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
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
. You can find more of his posts