I have not written much on the economy lately, but decided with the recent jobs report, that now would be a good time. On Friday, the Labor Department released the May jobs data and 431,000 new jobs were added, but nearly all were temporary census workers.
Also, the U-6 report (which includes the total unemployed plus all marginally attached workers and those employed part time for economic reasons) is at 16.6% and nearly one year ago when I blogged about this subject it was 16.8%. Not much improvement (despite tremendous Government action).
Below is a chart from the fine folks at Chart of the Day, which they have dubbed the “Scariest Job Chart Ever," as it shows how the decline in employment is WAY uglier than in past recessions.
Check out the two red lines at the bottom. The solid one includes Census hiring, while the dotted line doesn't include it.
What's clear is that while we still have a rebound including Census hiring, we're already flattening out on the dotted line. This is a shape not seen on the other lines suggesting that the fall is extremely deep, and the recovery is shallow.
This begs the question: can we have a recovery without jobs? Has all of the GDP growth from the past two quarters been the result of Government spending (and it this sustainable)? Where do we go from here? Will we stay flat for the next few years? Please contact me to share your opinions and thoughts on what you are seeing in your company, industry and region.
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Hi Scott:
Interesting topic. I believe it will be a jobless recovery. Most corporations have been shedding jobs and costs (look at H-P and the recent news of Hershey Co.) which makes for a good balance sheet in the short-term. The U.S. has lost millions of jobs that won't come back at least not as they were. New jobs will be created but people will have to be retrained and reprogrammed to work differently. Michigan currently has the highest official unemployment rate in the U.S. at 14% and massive retraining programs but no jobs to offer their retrained citizens.
Economists and futurists predict that 50% of the jobs people will be working at in 20 years don't even exist today. As usual, small business and entrepreneurs will create a lot of these new jobs but a lot of this job growth will depend on where you live. You may want to check out the most recent data on this from the Kauffman Index on Entrepreneurial Activity. Sadly, PA has historically and continues to lag in the bottom five among all states in this category.
http://www.kauffman.org/newsroom/despite-recession-us-entrepreneurial-activity-rate-rises-in-2009.aspx
Personally, I still believe there are lots of growth opportunities here in PA but one has to be nimble and quick to recognize the "new normal." Just a few thoughts of mine on this complex but important subject.
Have a good day.
Bruce
Posted by: Bruce Nilson CMC | June 08, 2010 at 04:39 AM
Morning Scott,
I don't think we can see a full recovery without jobs being added back in, unless there are some serious shifts in the make up of how Americans use their income.
Underwater scenario:
If purchases were based off of dual incomes, and heavy credit use, then unless bankruptcy or refinancing (of a significant nature) is available, that kind of couple needs to have both people working.
Treading Water:
Same couple but were only leveraged to a point where spending was generating some debt with a dual income. This will break in two directions:
1 - Either the lifestyle has to change and they could tolerate being a single income. Perhaps they find this new lifestyle (One person working, one person not) is something they like. The mythical "typical" family if you will.
2 - They cut back. The stresses build. Some moves get made to keep afloat as long as possible. If a job becomes available they take it and are moved to floating status after some period of time. Otherwise, they slowly go underwater.
Floating
Enough income is present that no changes are necessary, but are likely to be made, just to be sure. (excluding those that are not in the realm of worry about their jobs and/or bills).
For every person who is underwater or floating, a psychological change needs to be made to ensure that their spending doesn't sink them. Even if their situation resolves in a positive way, the habits that got them there need to change.
I assume you know all that. However, people don't change quickly. Organizations can (though many don't) adapt their spending to ride out the changing weather. It comes down to the old productivity / profitability issues. How do you generate more for the same or less? What has payback? What are we spending that we can cut back? What is discretionary versus mandatory? A fiscally aware company will move to maximize everything it can in crisis, and the time to relax those moves always seems to lag a long time from when they could do it. Additionally, if you identified areas where spending was inappropriate, why would you go back to allowing the waste? Sure, some creeps back in, but most 'hold the line'.
When this happens recovery begins. Companies show profits, but they are doing it at the expense of increased pressure internally on people, perhaps delaying repairs, and having removed the 'fat'. If all companies are doing this at once, recovery will be slow, and have a lot of dips and swings. Once the corporate entities feel as if they are going to be alright, they will relax a bit. As they relax, the purchases go up. As purchases go up, the economy in general starts to pick up. The last place to see this? The employees.
The longer the recovery takes, the longer it will all take. That seems a little obvious right? Cash has to flow into the market somewhere. If companies are hesitant, and since this is world-wide, it takes even longer. By the government pouring in workers and cash, it can help to kickstart the economy and gets things back to a level of equilibrium. Will it be enough? That I can't tell.
Here's what I see:
I travel as a trainer for CAD software for the creation of Boxes. My company also serves as Pre-Press software (getting images to print on presses) side of things too. Most of the jobs I do are East Coast or Canadian, but I also teach general classes in our offices which melds people from the entire US and Canada. As of about Christmas, the number of hours worked by designers has jumped. They went from 30 hour weeks to +/- 50 hour weeks. This died off Mid February, and started back up at the end of March. If I guess at how I see the market shift versus the manufacturers I deal with: The current slump below 10,000 in the market should come to an end around the beginning of July. Everything I see points to a true recovery starting then. Job postings for Designers have shown up heavily in the last few weeks. Companies are beginning to hire, or at least interview, for potential hires. The amount of work is starting to pile up for the designers. People are starting to create new graphics for cartons rather than just running old one again.
Most companies I have talked to (sometimes owners, sometimes high level managers, sometimes just department managers) are all indicating that orders are up. Not "as much as they would like" but getting there. The market has stabilized, the industry has stabilized, and confidence seems fairly high that the orders will continue to come in.
My company (Esko Artwork) is based in Belgium. They still have a hiring freeze on, but we are replacing essential losses as needed. Right now, the graphics side of the business is maxed out for training and support. We are seeing a trend of "use the same packaging, but radically change the face". This is really pumping a lot of money into the printing segments. This is generally the type of spending you would see at a product launch. It Makes up for the spending that wasn't there for the last year or in some cases more. This is heavier in the US, than in Europe, or anywhere else for that matter, except the Middle East. They are on par with the US (by % comparison, not by $).
Locally, in Central MA: Things are slowly getting better. We are running right around 10% unemployment. This has dropped a little, but things are bad. There are few unskilled jobs. It will correct, but ti will take a little longer. This area has been badly depressed for years. Springfield was bankrupt for 5 years. Until they completely crawl out of the debt, this area will suffer from reduced spending.
Sorry for the length, but you asked. I get into a lot of different places and figured I could offer some insight.\
Bottom line: As long as funds are available to companies from nervous banks, things will turn around fairly well. It will take time. If the Government stops pouring money into the process, I don't think banks or companies will feel comfortable enough that things are stable, they will return to 'turtle mode' and things will stagnate, or slowly get worse.
Alex
Posted by: Alexander Meyer | June 08, 2010 at 12:42 PM
Scott
We have a long way to go before recovery. The stimulus money was most effective in that a large portion went to the States. This allowed them to plug the huge budget shortfalls they were experiencing. That forestalled numerous layoffs and cut backs at the state level. But now that the stimulus money is spent and state revenue collections are down, what is next? More fed funds to the states to keep them solvent, or cutbacks layoffs at the state level? This is a real Ponzi scheme, Because either way it is money coming out of the taxpayers pockets to cover profligate spending on the part of elected officials. It is just a transfer between government bodies. It is the same thing as us using one credit card to pay off another while you keep buying more things. Sooner or later you have to settle up.
I think that consumers have settled in a little to the current economic state. Those with some means and a steady income have cut back spending and reduced some debt. They have stabilised at a "new normal". they have sorted out how much they can spend, where they want to spend it, and what their priorities are. Four years ago, consumers would gladly trade money for time. Now they are trading time for money. For example, more cooking at home, tending your own yard, etc. But the days of unrestrained, conspicuous consumption are gone. As to the lower class/lower income,blue collar and those white collared workers still out of work, prospects are not good, and spending is still very restrained and constrained.Just taking care of the basics as frugally as possible is the key objective. No room for impulse/discretionary spending. That is why, eg, Walmart is not doing as well as Target. Two different customer bases with two different budgets and outlooks for the short and long term.
I am not a doom and gloomer, but I see some difficult times still ahead. Until the Federal Govt gets a handle on spending and establishes a real industrial policy that will help us get back into "making things" I can't see how we can have a sustainable recovery. An economy that is 65% based on consumer spending doesnot have a firm foundation. Where is the value creation?
Just my thoughts,
Tony S
Posted by: Anthony Schiano | June 09, 2010 at 10:11 AM