The New Commanding Heights

Where is the economy growing?

That’s what we should ask when we look at today’s job report. I know everyone will be obsessing over whether private jobs grew or shrank by a few thousand jobs above or below expectations, but the real question is what sectors of the economy are growing.

When you look at the economy that way, the answer is pretty clear: education and healthcare are growing; construction and manufacturing are shrinking. Over the past 5 years the economy has added 1.4 million healthcare jobs and 400 thousand teaching jobs. At the same time, construction employment has shrunk by 2 and a half million jobs, and manufacturing has lost 2.2 million positions.

The dynamics aren’t that hard to understand: an increasingly technological workplace requires more education and training, and an aging population needs more healthcare. Also, these two sectors are highly dependent on the government, and government spending has grown dramatically here in recent years. On the other hand, the housing bust has sucked all the air out of the room in the construction industry, and manufacturing employment continues to be plagued by the labor/capital equation—it’s cheaper and simpler to use machines for routine tasks than to use people.

These dynamics explain geographical differences as well; in New Hampshire, employment in Grafton County has grown, dominated as it is by Dartmouth College and the DHMC hospital. Jobs in most other counties have fallen.

If these are the sectors that are growing, we need to figure out how to reward innovation and efficiency. There will be some bumps along this road, but it’s the growing sectors that will determine how productive the economy will be over the next decade.

Douglas R. Tengdin, CFA
Chief Investment Officer
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