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Innovation and Entrepreneurship, Not Federal Spending, Will Get Us Out of First Gear
Startups are what create net new jobs

Friday’s jobs report – most likely the last one we’ll see before the November elections – showed employers added only 114,000 jobs last month. Not a great result in an economy of our size, but better than many economists expected. Somehow the mediocre gain dropped the official unemployment rate to 7.8 percent from 8.1 percent. We’re not going to waste your valuable time questioning the veracity of the numbers, but politicians who try to take advantage of this perceived job surge in their campaigns should be honest about the rest of the report—the share of jobless workers who’ve been out of work for at least six months is still extremely high at about 4.8 million. That’s about 4 in 10 total unemployed workers. Very depressing when we’re supposedly three years into the “recovery.” 

Long term joblessness, which tends to be a more accurate picture of what’s going on with mid-level and senior level job-seekers, has a debilitating effect on the economy. While some say it justifies the need for more federal spending to maintain and create jobs, we say long term joblessness highlights the need for more pure entrepreneurship and innovation. If there aren’t enough higher level jobs in the corporate and government sector for these talented folks, then make it easier for them to start their own companies, hire/mentor others and built productive assets.

As Thomas Friedman noted in his op-ed piece in yesterday’s New York Times, “If there has been one consistent weakness to this president’s public messaging, it is that it is often lacking in any excitement about innovation and entrepreneurship—the real drivers of our economy. In recent years, all the net new jobs in America have come from startups.”

Free agent economy

In many “idea” businesses, including software, media and marketing that are heavily dependent on out of the box thinking, you can get most of your work done by tapping into the “free agent economy” and using outsourced expertise. Here’s a great example of how companies are growing and moving the economy along by doing everything except hiring permanent full-time W-2 workers with benefits.

It’s like we’ve been saying throughout the economic downturn, there’s lots of work to be done, just not a lot of jobs in the traditional sense of the word “job.” Whether you’re a job seeker, an employer, a recruiter or an investor in companies, get used to the free agent economy. It’s here to stay.

Macro view

Despite the plague of high gas prices, long-term joblessness and a depressed housing market, Americans are still going to drive. And when they can’t squeeze another couple months out of their worn out vehicles they’re going to bite the bullet and get a new one. Driving (i.e. independent transportation) is part of our DNA and always will be. Case in point: Auto sales hit their highest level in four years in September, as nearly 1.2 million vehicles left the showroom—a 13 percent increase from a year ago. The cheap financing isn’t hurting either.

OUT TAKE: As auto makers and suppliers start to feel more flush, expect a significant surge in Super Bowl advertising this winter and stronger than expected ad spending across the board for a post-election year. Whether you’re in consumer or B2B, we advise getting your 2013 media buys in early this year as they’ll be more competition for desirable inventory than you’ve been used to fighting for since the recession began a half decade ago.

While the looming fiscal cliff on January 1 has been grabbing all the headlines, another large, but generally ignored cliff is about to wreak havoc with both individual and institutional investors—the amount of time that swollen private equity funds have to start making some deals or else return money to their investors. As this report related, “The private equity world is sitting on that 13-figure sum. It’s what the industry calls dry powder. If they don’t spend their cash pile snapping up acquisitions soon, they may have to return it to their investors.”

To make sure, we checked in with our friend Paul Brian Gibson, Portfolio Manager for Norwalk, CT-based Harborview Capital Management and he agreed.  “I’d say that’s just about right, and it’s been going on for quite some time, to the point where these private equity funds will have to start returning money to investors. Post-crash buyers finally came bidding, but sellers did not want to sell in the "hole", so like our residential real estate there was a strike.  Since then the amount of money private equity managers have had has grown, but the good deals have been done. You’ve seen M&A volumes down sharply as well (my investment banking friends are trying to hang on, but we should see more cuts into year-end by the JP Morgans and Bank of Americas of the world.


Conclusion

Let’s get these elections over with so we can start making long-term decisions, investing in great businesses, producing great products, services and marketing campaigns and keeping our customers and clients thrilled with what we do.


TAGS: auto sales, Paul Brian Gibson, Harborview Capital Management, jobs report, November election, free agent economy Thomas Friedman, startup companies


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