More Jobs Now, but Where Is the Country in Economic Cycle?

The August 2 report from the Bureau of Labor Statistics showing that US unemployment fell and 162,000 jobs were added in July was positive, especially on the heels of news that second-quarter GDP grew at an annual rate of 1.7 percent.
 
Nevertheless, the numbers beg the question of whether the US economy and job growth are where they should be at this point in the recovery, according to Brian Hamilton, chairman of Sageworks, a financial information company that serves financial institutions and accounting firms.
 
"We're currently forty-eight months into this period of economic expansion, and historically speaking, we should be heading into a contraction in less than a year," Hamilton said. "Even now, as we're deep into the recovery period, we haven't been seeing the consistently strong GDP growth that we'd expect." 
 
Indeed, the revised GDP figures showed that the average annual growth of real GDP has been 2.2 percent since the recession ended in mid-2009. That's below the average annual GDP growth of 3.3 percent between 1929 and 2012.
 
"Now, the good news is that private companies, who drive the US economy, are seeing strong financial results," he said. "They're seeing double-digit sales growth and strong profit margin expansion."
 
The latest Private Company Report by Sageworks showed that private companies, on average, were generating revenue growth at an annual rate of about 10 percent as of May 31, and average net profit margins were nearly 7 percent, which is higher than a year earlier.
 
But despite the growth, companies aren't consistently hiring, as they refrain from adding overhead in an uncertain environment, Hamilton noted. According to a recent Sageworks survey of CPAs, private companies they work with are largely planning to maintain, not increase, their employment levels.
 
Looking historically from 1945-2009, the average expansionary period is fifty-eight months, according to data from the National Bureau of Economic Research. The fact that companies aren't hiring much, despite GDP growth at this stage of the cycle, raises the question of what will happen to hiring if the United States encounters a contraction in 2014, or around when the historical average would predict a contraction to occur.
 
Hamilton has been expressing concern for months that job growth could get stymied by the cyclical nature of the US economy. In April, he noted in an interview that the United States typically has about four years of economic expansion for every one year of recession. "When is that next recession coming? It's hard to say, but we're on the back end of the expansion," he said, adding that with unemployment above 7 percent in a positive part of the economic cycle, it's disconcerting to think that it's likely to increase when the economy begins to contract.
 
"It's very odd that we have economic growth without . . . very strong employment growth," Hamilton has said.
 
About Sageworks 
Raleigh, North Carolina-based Sageworks is a financial information company that provides risk management solutions to financial institutions.
 

You may like these other stories...

IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
Credit Suisse says pension assets at risk unless court delays sentencingJohn Letzing of the Wall Street Journal reported on Wednesday that Credit Suisse Group AG says its management of billions of dollars in assets for...
The prospect of International Financial Reporting Standards (IFRS) being fully adopted in the United States in the near future are growing less likely, as the Financial Accounting Standards Board (FASB) and the International...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.