We have long been wary of programs that provide partial funding to encourage employers to add employees in order to strengthen the economy. The “we’ll pay a third, you pay two-thirds for six months” federal and state hiring incentives can be effective if they are lucky enough to be timed to catch the economy on an upswing, but, if they do not, the new hire is back on the street when the program ends.
Employers do not want to carry employees whom they have had to make a position for, and, eventually, do not need. Nor do they want to risk the loss of the training effort that goes into a new hire whose position might not be sustainable.
Much better, if the goal is to stimulate the economy, is to focus on strengthening the consumer. It is consumer spending that produces jobs. Any capable business owner will expand his workforce, and quickly, when he sees an increase in consumers coming through his or her doors.
An article in The Wall Street Journal last week ties together some simple data about assets to suggest why consumers are just now beginning to show their enthusiasm for spending, which is what it will take to add jobs. The reason is strengthening home prices – less so the strong stock market.
According to the Journal, home prices are clearly better than they were. The benchmark S&P/Case-Shiller 20-city home-price index was up 5.9 percent in July year-to-date. Sixty-nine percent of families owned a home in 2010 compared with 50 percent that own stocks either outright or in retirement accounts, the Journal wrote. And the median home nationally is about $210,000, compared to an average holding in stocks of about $29,000.
While stock market benchmarks are up considerably for the year, so far, at 12 percent or so on the average, it is home value that is the greater portion – and potential portion, as a mortgage is probably involved – of a family’s assets.
But engineering the return to strong home values after the 2008 bust, for all its importance, has largely been a failure. The federal government was able to sustain large banking institutions, but even with incentives the banks lacked the mind-set to renegotiate, one by one, the mortgages that would better value their collateral and put families and neighborhoods on a stronger footing. And the smaller banks, much closer to their borrowers, had passed the mortgages they originated along to the bigger banks, resulting in a disconnect. Instead, it has been the marketplace that is bringing homes values back, but slowly.
Americans have believed in the value of home ownership, but that is re-emerging in different ways and to a lesser extent. A portion of homebuyers are coming in from the suburbs, eager to be closer to centers of commerce and entertainment and to drive fewer miles. Square footages are less. Renting rather buying has increased in some urban areas.
It will take time to further increase home values, with the peak seen in 2006 or so far in the distance. But as they come back, consumers will be more comfortable with their household spending. And business owners, as they see consumers come through their doors, will begin hiring.