Sunlight Shining Through Cloud

Jobs: What Just Happened?

Posted on: April 1, 2011

I can’t think of anything duller than a history lesson about economics.  That’s why today’s e-newsletter Veteran Eagle caught my attention.  In an article called Message From The Top, Ted Daywalt writes a plain-English explanation of the hopefully-ending “great recession” as it regards employment.  Here are two excerpts:

[T]he United States and many other countries’ economies are still in a quagmire.  The political strife and conflict currently taking place in Washington is adding to the economic problems because companies want certainty.  Over the last three years – due to actions in Congress – there has been no certainty to give a businessperson confidence in investing or growing a business.

[I]n previous downturns, which were not as long as the recent one, companies would keep employees on longer than perhaps they had financial justification to do so for several reasons.  One main reason being they wanted the employees to be around when the economy came back.  This development was manifested as a decrease in productivity data as seen in past recessions.  When a company has the same number of workers but is producing less, productivity drops.  And, if the recession was short in duration, that approach was justified.

But this past recession was different in several ways as the economy underwent some systemic shifts not to mention the collapse of the housing market that brought the financial services sector down with it.

And then something interesting happened; productivity rose as companies, aided by technology, learned to operate with fewer workers and then they cut their workforce drastically and stopped hiring.  This was the first recession in which Enterprise Resource Planning (ERP) systems were fully in place and refined to the point of being able to measure productivity more quickly and accurately than ever before.  In addition, management was able to produce Key Performance Indicators promptly, and people could be laid off earlier in the cycle if the figures didn’t add up.

Moreover, the prolonged downturn prevented employers, if they were still so inclined, from continuing to hang on to workers.  For the first two-thirds of the recession (the first 12 months to December 2008), employers cut a total of 3.6 million jobs, or about 300,000 per month.  But for the last one-third of the recession (January to June 2009), they cut a total of about 3.9 million jobs in half the time, or almost 650,000 per month.  In the later part of the recession, the economy was losing more than 800,000 jobs a month.

As the employment economy now recovers, high productivity continues to temper overall job growth as many of the lost jobs will not need to be replaced for myriad reasons.  And technology plays a role here as well.  At least some of the institutional knowledge once held by long-time employees is now captured in the ERP systems.  That is a major new event.

Note: Some source material for Daywalt’s article came from economist Bruce Steinberg.

the United States and many other countries� economies are
still in a quagmire. The political strife and conflict currently taking place in
Washington is adding to the economic problems because companies want certainty.
Over the last three years due to actions in Congress there has been no certainty
to give a business person confidence in investing or growing a business.

There is good news on the unemployment front. Today DOL reports unemployment
fell from 8.9% to 8.8% and that 216,000 jobs were added in March. The bad news
on the unemployment report is that the Current Population Survey (CPS)
unemployment rate (remember, there are two unemployment reports, CPS and the
employer payroll survey) for the 18 to 24 year old veterans (the group is
primarily National Guard and Reserve personnel) rose from 28.6% to 28.8%. This
group�s unemployment has been as high as 31.9%.

One can speculate that the high unemployment rate in the National Guard has been
a major contributing factor to the high suicide rate in the National Guard.

The noted economist Bruce Steinberg reports that in previous downturns, which
were not as long as the recent one, companies would keep employees on longer
than perhaps they had financial justification to do so for several reasons. One
main reason being they wanted the employees to be around when the economy came
back. This development was manifested as a decrease in productivity data as seen
in past recessions. When a company has the same number of workers but is
producing less, productivity drops. And, if the recession was short in duration,
that approach was justified.

But this past recession was different in several ways as the economy underwent
some systemic shifts not to mention the collapse of the housing market that
brought the financial services sector down with it. 

And then something interesting happened, productivity rose as companies, aided
by technology, learned to operate with fewer workers and then they cut their
workforce drastically and stopped hiring. This was the first recession in which
ERP systems (Enterprise Resource Planning) were fully in place and refined to
the point of being able to measure productivity more quickly and accurately than
ever before. In addition, management was able to produce Key Performance
Indicators promptly and people could be laid off earlier in the cycle if the
figures didn't add up.

Moreover, the prolonged downturn prevented employers, if they were still so
inclined, from continuing to hang on to workers. For the first two-thirds of the
recession (the first 12 months to December 2008), employers cut a total of 3.6
million jobs, or about 300,000 per month. But for the last one-third of the
recession (January to June 2009), they cut a total of about 3.9 million jobs in
half the time, or almost 650,000 per month. In the later part of the recession,
the economy was losing more than 800,000 jobs a month. 

As the employment economy now recovers, high productivity continues to temper
overall job growth as many of the lost jobs will not need to be replaced for
myriad reasons. And technology plays a role here as well. At least some of the
institutional knowledge once held by long-time employees is now captured in the
ERP systems. That is a major new event.

Here is a quick look at the negative and positive factors for March:

On the negative side:

-Rising prices at the gas pump and in groceries are dampening spending by
consumers.

-Consumer confidence continues to fall. The Conference Board�s Consumer
Confidence Index (CCI) fell sharply from 72.0 in February to 63.4 in March, an
8.6% decline. The CCI has hovered in the 50s to 60s range for the past year, far
below the 90 which indicates a healthy economy. Consumers are not feeling quite
as confident about any �recovery� as governments around the world would like
them to.

-The housing market remains down. The Case-Shiller home-price index of 20
metropolitan areas fell by a seasonally adjusted 0.2% in January from December.
The new construction market never emerged from recession; the gain last year was
stimulus induced and clearly temporary. Sales of new single-family homes
collapsed in February as a combination of high unemployment, tumbling prices and
a glut of cheaper alternatives brought activity to a near-standstill. New-home
sales fell 16.9% to a seasonally adjusted annual rate of 250,000 in February

-In 1974 the United States had a deficit of $40 billion. The current
administration has increased the deficit to over $14 trillion. 

-In a sign that Americans are recognizing the realities they face about their
chances for a comfortable retirement, a new survey finds U.S. workers are more
pessimistic than at any time in the last two decades: More than a quarter of
workers now say they are "not at all confident" about retirement, up
significantly from a year ago.

-Biggest jump in food prices in 36 years fuels 1.6% jump in wholesale prices;
new home construction hits second-lowest level on record

-Consumer sentiment in the U.S. dropped more than forecast in March, damped by
higher gasoline costs and the effects of Japan�s natural disaster.

-The recession has left many of those baby boomers financially unable to retire
on schedule.

On the plus side:
-The DOL unemployment report shows the non-farm private sector added 216,000
jobs in March. That is good news.

-According to Wanted Analytics, there are currently more than 15,400 job ads for
Management Analysts posted on paid online job boards. This is an increase of 35%
vs. prior year. Job postings on VetJobs have been up an average of 25% over same
day last year.

-Overall hiring demand for engineers was up 106% in February per Wanted
Analytics.

-Weekly jobless labor claims has fallen in three of the last four months.

-We are starting to hear of shortages in engineering, healthcare and IT. This is
good as it is a deep forward leading indicator that we are finally starting to
move out of the recession. 

-Roughly 90% of the states have added jobs during the most recent 12-month
period.  

-The 0.9% decline in the nation�s unemployment rate during the past three months
was the sharpest three-month fall in 28 years defying all economic models.

-The Dow average has rebounded 87% since its low in early March 2009, with
similar gains by other measures.

-U.S. exports to China have risen roughly 24% per year since 2001, making China
the fastest growing market for U.S. goods.

-U.S. economic growth has now been positive for seven consecutive quarters.

-Retail sales increased 1% in February, the largest gain since October and the
eighth straight monthly advance.

For a very long list of positive indicators, visit Jeff Thredgold�s Tea Leaf at
http://www.thredgold.com/tea-leaf/

The bottom line is that the country is moving forward, but at a very, very
anemic rate, hindered by the ongoing political problems in Washington. The good
news is that employers are hiring! Today VetJobs has over 45,000 REAL jobs
posted by several thousand employers, up over 19% from the same day last year. 
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