Every week we wait with anticipation hoping that the job numbers will surprise us and a return to robust hiring will be just around the corner.
Unfortunately, this is wishful thinking.
Many jobs have been lost during the great recession of 2008 and 2009, and many of these jobs will never come back; they have been outsourced overseas where labor costs are lower and the standard of living pales in comparison to America.
Millions of jobs are gone for good.
When was the last time you called customer service and had the phone answered by someone living in the United States?
If you did, you are fast becoming the exception, as it is now more of a norm for call centers to be outsourced to India, Philippines, Mexico, and other lower-cost labor centers. For many companies in the U.S., technical support has already moved outside the U.S.. Blue-chip companies like IBM and Cisco have embraced these lower-cost alternatives as a way to stay competitive in a fiercely global marketplace.
Yes, the U.S could develop a new industry that could propel the country forward. Perhaps alternative energy is the way forward towards more job creation for Americans.
But let's be clear that the rest of the world is not standing by allowing the U.S. to capture high-paying jobs in this nascent industry.
Europe, China, and other countries are also seeking to be a leader in alternative energy.
For this reason, we should expect a higher natural unemployment rate of around 8% rather than the 5% we have been accustomed to. The displacement of jobs to outside the U.S., coupled with a de-leveraging economy, means that the unemployment rate will be higher on a long-term basis. A higher unemployment rate means the economy will likely grow slower and, for that reason, we expect GDP growth to be subpar for years to come. A rapid recovery in corporate profits is likely an unrealistic expectation. This lower growth rate will impact U.S. equity asset returns.
"China and India are the obvious investment choices, but don’t forget other markets including Malaysia, Indonesia, Thailand, and Vietnam as opportunities for growth."
Lower profits equals lower returns.
As more and more jobs are outsourced overseas, you can expect economies overseas to continue on their rapid path towards a sustainable and growing middle-class. Middle-class consumers are one of the key drivers of long-term growth for emerging markets. Expect that these economies will continue to morph away from primarily export oriented economies towards a more balanced distribution of economic growth; the middle class is coming.
For that reason, the emerging markets growth story is not over yet.
China and India are the obvious investment choices, but don’t forget other markets including Malaysia, Indonesia, Thailand, and Vietnam as opportunities for growth. As these economies grow, look for financial pillars like Hong Kong and Singapore to continue their rapid growth as well.
Economies and markets change and we are certainly seeing that now.
Just because the world is changing doesn't mean that the world can't be profitable, it can be. But make sure you adjust and allocate based on the shifting global economic sands. Having a long-term strategy makes sense but one must adapt to short-term changes in the environment to be relevant in today's highly volatile conditions.
Adjust as needed and recognize that the employment picture in the U.S is undergoing structural changes for the long-term. And this new landscape will impact your portfolio strategy.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 and 2010 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at email@example.com.