Where Will the New Jobs Come From?

04/02/2009 2:41 pm EST

Focus: MARKETS

Howard Gold

Founder & President, GoldenEgg Investing

Stock markets worldwide have rallied on hopes we've seen the worst of the financial crisis and global recession.

But the growing ranks of the unemployed probably won't get much relief. First-time jobless claims jumped to 669,000 last week, well above expectations. And Friday's employment report is likely to be grim: Economists predict the March unemployment will be sharply higher than February's 8.1% rate.

And it's likely to get worse: The International Labor Organization forecasts 50 million people will lose their jobs globally by the end of this year. Unemployment may hit double-digit percentages in many countries, including the US. We've already lost 4.4 million jobs since the recession began, and just shy of 15% of the US labor force is either officially unemployed or involuntarily working part time.

I'm getting more and more convinced that this is not just a deep cyclical recession but a fundamental "reset," to use a popular word these days. US consumers simply can't resume the debt-induced spending binge that powered the global economy for most of this decade. And the rest of the world, especially China, isn't ready to take up the slack.

That means we're going to see huge cutbacks in capacity as bankers, manufacturers, and retailers retrench. This is what all the drama over General Motors (NYSE: GM) and Chrysler is really about: finding the right size at which companies can compete in a shrinking market-and how much pain it will take to get there.

The answer: a lot.

"'These jobs aren't coming back,'" economist John Silvia of Wachovia told The New York Times. "'A lot of production either isn't going to happen at all or it's going to happen somewhere other than the United States.'"

Indeed, US-based multinational corporations are shrinking their US workforces or at best adding marginally to them while expanding dramatically overseas. And the companies of the future are far away from their prime job-generating years-and many of those jobs are likely to be for highly skilled and educated people.

Two proposed megamergers among pharmaceutical giants-Pfizer (NYSE: PFE) and Wyeth (NYSE: WYE) and Merck (NYSE: MRK) and Schering-Plough (NYSE:SGP)-could result in tens of thousands fewer sales reps, researchers, marketers, what have you, in the new companies' efforts to cut hundreds of millions of dollars in costs each year.

And recent announcements by three of the US's biggest blue-chip companies-IBM (NYSE: IBM), ExxonMobil (NYSE: XOM), and Procter &Gamble (NYSE: PG)-were particularly revealing.

Last week, IBM said it was laying off 5,000 US workers in its global business services division and transferring many of those jobs to India. IBM earlier had told employees they could apply for jobs in emerging markets, "but they would be paid in local wages," the Wall Street Journal reported.

IBM got a lot of grief a few years ago for outsourcing jobs to India, but the trend continues apace: It had 74,000 employees in 2007, and more than 70% of its 400,000-strong workforce is based overseas. An IBM spokesperson declined to comment.

ExxonMobil also recently announced it's building a technology center in Shanghai for its global petrochemical business, after having just completed a major expansion of a hydrocarbon fluids plant in Singapore.

"Over the next ten years, we expect roughly 60% of the world's petrochemical growth to occur in Asia, and we are rapidly expanding our manufacturing footprint [there,]" said Steve Pryor, president of ExxonMobil Chemical Company.

I tried to find out what plans ExxonMobil had to expand in the US, but the company didn't respond to my requests for comment.

Finally, late last year, consumer products giant P&G unveiled "the most ambitious manufacturing expansion program in its history." Chief operating officer Robert McDonald said "'almost all' of the 20 new manufacturing facilities that P&G will open during the next four years will be outside its established markets."

"'P&G's center of gravity will shift toward developing markets,'" he told analysts.

A P&G spokesperson said the company is opening a new plant in Utah in 2010, which will employ 300 people, and pointed out that it has added to its US workforce "through organic growth and acquisitions such as The Gillette Company." 

But in an emailed response, the company acknowledged that "today, approximately 60% of our business and the vast majority of our employees are outside the United States. The majority of new manufacturing plants will be outside the US and reflect the growth of our business in these emerging markets."

At least give them credit for candor. And frankly, I can't argue with their logic, either: The US is a mature market, and global companies need to go where the growth is. Otherwise they might have to cut more jobs here anyway because of declining profitability.

But there are some signs of hope. Small businesses generate most of the new jobs in the US, and there are plenty of them out there, although the venture capital pipeline has slowed drastically since the heady days of the late 1990s.

Mark G. Heesen, president of the National Venture Capital Association, a trade organization and lobbying group, does see some areas of real potential.

"We've seen intense interest in the clean technology sector in the VC community," and that industry got 17% of venture capital dollars in 2008, he says.

Clean tech includes wind and solar power, biofuels, lighting, building materials, new car battery technology, and other alternatives to fossil fuels. Heesen thinks the Obama Administration's stimulus plan and energy policy will also jump start investment in the sector.

"VCs are saying this is a large market," he says.

It also may offer job opportunities for different kinds of workers (installers, technicians, and production people as well as rocket scientists). That's probably not true of the other hot area he sees-biotech and the life sciences, which are top heavy in PhDs and MBAs.

How many new jobs will these breakthrough technologies create? Who knows? Probably not as many as in the Internet boom of the 1990s-and less than the number we're losing now across the board. And it won't happen right away, either, because as Heesen points out, most of the jobs in VC-backed companies get created after they go public. That's at least a few years away.

So, even as markets rally, laid-off workers should focus on retooling for the future. It looks like they'll have plenty of time on their hands to do it. 

Howard R. Gold is executive editor of MoneyShow.com. The opinions expressed here are his own and do not necessarily reflect the views of MoneyShow.

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