An Economic Recovery without Job Growth?

Is it possible we're headed for an economic recovery without significant reductions in unemployment? Scott Burn's column in today's Dallas Morning News makes a case for it. Read on:

Sometimes a single statement can be so loaded with import that it just stops you.

That happened recently when I interviewed economist David Ranson. A consulting economist for H.C. Wainwright, a research firm serving investment managers, Ranson has spent years examining how markets tell us things – if we listen. I've learned to take his anticipation of our economic future very seriously.

I asked him three questions. His answer to the third question opens the door to possibilities that few are prepared to think about, let alone discuss.

What kind of economic recovery will we have?

"I can see double-digit GDP growth, and I strongly believe the recovery will be V-shaped," Ranson said. "We'll have positive growth but weak employment.

"That's not the conventional wisdom, which is often shaped by mood. Recent growth figures, for instance, were greeted with worry by journalists and many economists. But I think we'll get even higher growth figures in the next two quarters.

"Unfortunately, that doesn't mean employers will hire new workers. Productivity is rising, but much of it may be because employers aren't hiring. This is very bad socially.

"You see, employers have choices," he said. "They can choose a large workforce of average workers. Or they can choose a smaller workforce of above-average workers. An employer who sees employment as a losing game – more government regulation, more taxes and more hassles – isn't going to be eager to hire. I think that's what's happening now."

That sounds like an increasingly winner-take-all economy, I said.

"Yes, that's the way we're going," Ranson said. "The economy will recover lost output. But it will sputter out. We'll go back to subaverage growth as the government takes up more of our economy.

"That's the message of history. We had our best growth after demobilization following World War II. But government was smaller then. In the future, we'll have a larger government and perhaps growth of only 1 percent [a year], down from 2 percent.

"Unemployment will stabilize at a pretty high rate."

How can people protect themselves?

"In recent history, we've depended on stocks and bonds to securitize wealth. But those are both vulnerable," Ranson said. "So now we're at sea. David Swensen's answer is tangible assets. [Swensen is the highly regarded manager of the Yale University endowment.] We can now see capital flowing to the real – to productive assets rather than paper assets."

The important thing to remember here, he noted, is that human beings have relied on other stores of value at other times – things such as gold, silver, commodities and real estate. After relying on paper assets for more than a century, he said, we may be revising our notions of safe ways to store wealth.

If he's right, we're heading for what some will call an "asset quake."

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Scott Burns is a syndicated columnist and a principal of the Plano-based investment firm AssetBuilder Inc.