What comes first? Demand or Jobs?

Jessica, in my view it is actually the anticipation of an increase in demand that drives hiring in an ideal scenario. Demand precedes the ramp-up in hiring required to meet it only when the business leaders lack the ability to forecast the increase in demand! But we must bear in mind that the dynamics of supply and demand manifest themselves atomically within each industry and as a result of each buy/build decision in a cumulative fashion: which is to say that different industries will be at different points in the curve at any given point in time. Currently production is down because demand is low and not expected to rise: to add jobs and increase supply of product in an industry without a rise in demand is very bad business: we must be expecting a rise in demand for a ramp-up of production to be feasible. On the other hand, a true and lasting recovery of the demand rate requires that first people be put back to work, so they will have the funds with which to demand products & services. To say it is 'chicken and egg' is only a partial answer, the truth is that ideally it is not the recovery of demand that is the essential impetus, but rather, the expectation of an increase in demand that causes businesses to increase hiring and production.

For a society that produces nothing, however, an anticipated increase in demand in the US results in hiring overseas rather than here: and since the hiring isn't happening here, there is no resulting financial support for the increased demand (other than higher elective spending by the non-growing pool of gainfully employed workers - which will be inadequate and unsustainable). This is why politicians try to convince us that spending is the "patriotic" thing to do, as with the new-car-buying incentive program from a couple of years ago: because only by those of us left working being irresponsible and spending excessively can demand be boosted, in the absence of a recovery in jobs. When will the jobs recovery come? Well, freshly bailed-out GM is thanking the American Taxpayer by investing in new production facilities in....Mexico. Until we find a way for it to make business sense for companies to build new facilities and create jobs in the United States, we will be unable to recover. We need true 'free trade' and not structured trade agreements that make it more profitable to produce things elsewhere (ie NAFTA, CAFTA, etc) or the jobs that service the demands of our economy will always be some other country's jobs, rather than ours!

From a basic macroeconomic perspective, demand and jobs belong to two different orders though they are tightly coupled. Demand relates to supply and unemployment (or jobs) relates to inflation.

Now obviously increasing demand should lead to adding jobs and it generally has so we are often accustomed to skipping supply and just saying jobs. However, there are two x-factors skewing that relationship these days. Those two factors are technology and offshore outsourcing.

Technology is allowing producers to increase supply without creating more jobs. In a similar way, offshore outsourcing is allowing producers to increase supply of goods and services without creating domestic jobs. Nobody’s counting the jobs we’re creating in China and India. If they were, there would be little wonder as to why our recovery is so weak.

So demand comes first, but technology and offshore outsourcing are preventing jobs from following.

That said, unemployment and inflation tend to exhibit an inverse behavior relative on each other. When inflation is high, unemployment tends to be very low. Currently, inflation is being held down by monetary policy so we have to cope with higher unemployment. However, when inflation is allowed to increase somewhat (generally with interest rates, we should see unemployment begin to dip. However, inflation comes with its own set of issues many of which can be far worse than the current issues of unemployment. At any given time, we have to “pick our poison” so to speak with these two.

1) I suggest to decouple it as one has really nothing to do with the other. Demand and supply relates to markets and production / availability. If the demand is growing a company can produce more without necessarily hiring.

2) Growing revenue is not necessarily a growth in demand either but more often than not a function of competition displacement - hence demand is part of a macroeconomic dynamic.

3) Intense hiring on the other side has many reasons. The three biggest are
a) startups that just create something new and need to hire
b) companies invested and create a new product or service
c) the end of a recession where jobs were cut and need to be refilled

my 2 ct

When a business is running into overtime and outsourcing to fill orders then hiring is considered. We'll reach the tipping point when more businesses are exhausting themselves producing orders and forced to hire people to get relief. There's no complex formula that comes into play until these conditions exist, especially with the fragile state of our economy.

I believe that Demand has to come first. There is always the delicate balance between the moves in the marketplace and the ability to deliver your product or service. In some cases the key factor is the effectiveness of marketing to create Demand. Which ever it is a company has to do some scenario planning in advance to develop strategies to address increased or decreased Demand. Every business see ups and downs in Demand. Some of it is seasonal and can be predicted. With sustained increase you must be prepared to either hire or outsource. We all know that people are any businesses largest expense so no one wants to add manpower until they are comfortable that they won't be laying people off in six months. So outsource where you can but make sure that you aren't negatively impacting your customer's experience.

Demand MUST come first. Atlas Shrugged provides excellent perspective on this.