The Great Job Machine

Until the third quarter of this year, the number one doubt facing the US economy concerned the Pyrrhic character of its "jobless" recovery. Then, during September and October of this year, net employment grew by 290,000, well ahead of most forecasts. But while more than 300,000 new jobs were created in services, over 50,000 manufacturing jobs were lost. This is more than can be explained by the long-term shift of the economy out of industry and into services.

At the same time, the jump in labor productivity in manufacturing--by 7.2% in the third quarter--indicates that there remains a great deal of excess capacity in the manufacturing sector. So don't look for any improvement in US employment to come through factory jobs. Instead, it is the greater flexibility of services that has produced the resumption of employment growth in the US.

Evidence for such growth abounds. For example, Kohl's, a large department store, has opened 48 new sites in October, hiring some 140 people at each of them. Stop & Shop, a chain of supermarkets, has reintroduced a delivery service from cashiers to a client's car--something done away with decades ago--and has extended opening hours in many stores.

America's reborn service economy stands in stark contrast to what is found in Europe. Thanks to the European Commission's tough competition policy, Europe has gone a long way towards making its industries more viable. In the service sector, by contrast, deregulation has been much more limited, probably because services are much less exposed to international competition, which means that old hidebound rules are easier to preserve.