For economic growth to be sustainable, firms need to start hiring again; this in turn supports the consumer and keeps growth on track. But the macroeconomic data is not encouraging for the world’s largest economy. In December just 16,000 jobs were created in the US and at the company level, fund managers are pointing to problems. Newton American fund manager Simon Laing says: “In a typical cycle we would expect to see employment growth, but there is certainly not much of that about at the moment.” He adds: “Firms have had a couple of quarters of improving fundamentals, but not enough to justify going out and hiring.” Laing is optimistic that employment will pick up eventually, but “not for a bit longer”. This view is shared by Axa Investment Managers’ Nigel Richardson, who expects employment to come through in the “next few months”. In Japan, the second largest economy in the world, outgoing Schroder Tokyo fund manager Denis Clough says employment will be held back because companies are building new plant in China or the US rather than at home. He has positioned his portfolio in such a way that an acceleration of the economy would damage returns. And Framlington Japan fund manager David Mitchinson says: “A lot of Japanese companies are only just beginning to have positive sales growth, so the mentality is one of waiting to be convinced.” He says companies have been burned by their previous experience. As markets picked up in the past, they began hiring and expanding capacity – only to see demand collapse again. This, says Mitchinson, has led to growth in the temporary workforce and a move away from full-time positions. He says: “You would probably need to see a longer period of growth to expand Japan’s workforce in a meaningful way.” But in Europe the situation appears to be brighter, according to HSBC European Growth fund manager Jeffrey Currington. He says firms are already boosting employment: “If companies are spending more money, it is not just goods they are buying but services too. Things like computer software spend has an impact on employment.” Currington adds: “This stops the drop-off in jobs seen in recent years. People feel more comfortable that they are not going to lose their jobs and there is also the increased chance of getting a better job at a later stage. This feeds through into a bit of a pick-up in consumer demand.” Newton Continental European fund manager Rajesh Shant is also positive. He says: “Companies have been holding back because they are not hiring people until they have to. But I think if growth continues, even modestly, then some degree of hiring will come through.” Shant says the eight Eastern European countries due to join the European Union in May could detract from employment, as their accession would make it easier for Western European firms to move production to these countries. However, he adds that these workers will, once their incomes rise, acquire a taste for goods and services from their richer neighbours, so boosting growth.