24/7WallStreet: What If Companies Don’t Hire People Back?

What If Companies Don’t Hire People Back?
Posted: June 22, 2009 at 5:03 am


It is normal for businesses to hire people back after a recession. The improvement in employment usually lags GDP recovery, but the trend is part of a normal cycle that comes at the end of an economic downturn.

The current recession has been so brutal that a number of normal trends may not apply.
The Wall Street Journal reports “According to a new survey, 52% of companies expect to employ fewer people in three to five years than they did before the recession began.” The study was conducted by Watson Wyatt this month and covered 179 companies.

The economy will suffer two body blows if the information is accurate. Unemployment is supposed to top 10% by the end of this year and could remain in double digits for much of 2010. Economists hope that the stimulus package and the normal rebound in business and consumer spending that cause a rebound help drive improved employment. The damage from this downturn may be great enough that many businesses elect to get by with less while they take what may be years to rebuild their fortunes. That, in turn, may lead to a permanent elimination of some jobs.

There are a number of reasons that this recession will not end as quickly as optimists expect or that a recovery will be nothing more than a 1% to 2% GDP improvement that goes on for the next few years. That would be quite different from the 4% to 5% GDP improvement that the Administration is forecasting for 2010 and the years beyond. It would almost certainly cause a widening deficit because there will be fewer and fewer people to tax as a way to offset government spending, much of it being done in the name of rebuilding the job base.

A lack of sharp GDP increases and an unemployment rate that could stay above 9% for a number of quarters may be labeled a recovery, but it is simply stagnation which is no recovery at all.

Douglas A. McIntyre


http://247wallst.com/2009/06/22/what-if-companies-dont-hire-people-back/

I'm sure you'll get help from "Joe in Texas" ... despite his clipped, succinct English, with an accent that suggests India ...

What we're starting to see, I think, is how the strategy employed in dealing with the financial crisis which was approved by Wall Street and rubber stamped by our Democratic leg government is insufficient at best, and a was a disgusting, insulting slap in the face to the American working class at worst.

The basic idea that came from Team Obama and the cabal of ex-Wall Street well connected, multi million dollar making economic "advisers" was that no dramatic changes to the system of marketeering was needed. Simply give Wall Street whatever it asks for with as few true strings attached as possible (the ones just for show to pacify the public are OK) and Wall Street will re-inflate the same basic bubble and get things back to business as usual.

Then, because there are (in the opinion of these geniuses) no fundamental flaws at the root of our financial and business structure, after a certain minor period of time everything will be peachy again.

What that is going to give us, I fear is:

a)A Jobless "Recovery" (a term which in itself ought to be an infuriating slap in the face to ordinary Americans - there is no "Recovery" without JOBS)

b)Inflation (thanks to the massive, massive influx of capital and horrendous out of control debt)

c) No recovery of the housing market (indeed, this month we are STILL breaking records for foreclosures in this country) because we elected to hand cash to banks instead of assist or pay mortgages of the borrowers. (The mortgage assistance act that claimed it would help 3 million homeowners by the end of the year has helped a whopping 17,000 people to date. It was mostly for show anyway, with the overwhelming majority of government assistance going to where it always goes: Business.)

d) A spiraling cycle of worsening unemployment stagnating or dragging the Wall Street (notice I didn't say "the economy" because Wall Street is not in and of itself the economy) back down.

.....there are market forces that are much bigger than they are. The population is increasing, and that alone dictates more jobs will be created. There will still be a need for goods as depleted inventories drive businesses to hire people. Supply and demand ultimately creates more jobs. It's a cycle that cannot be broken. The biggest culprit in job depletion is outsourcing and trade deficits. As the economy slowly recovers, the jobs will come back, and people will get back to work. That will lead to increased spending, rising costs, and eventually, the next recession. That's how it works, and no business or no president can change that fact. All we can really do is speed it up or slow it down, but ultimately, the ball keeps rollin down the hill.

There is a short supply of Americans who will be willing to work in jobs that don't pay enough to live on. The reason? Many of these jobs- even fast food window clerks- are being outsourced to places like India, who are able to pay their workers pennies on the dollar by comparison to identical jobs in this country. Free from business regulations and the minimum wage, these companies are committing what I term "economic treason".

Meanwhile, the American manufacturing base increasingly isn't. Well-paying jobs that used to be able to support a family of four on a single income even as recently as the 1980s are simply gone. Coupled with the rise in costs across the board, partly due to greed, the single-quarter short-term gain "requirements" of shareholders, and fuel costs, American workers are more and more less able to make ends meet. Products and services that were even ten years ago affordable and accessible even to Americans with low-paying and/or minimum-wage jobs are steadily and ever more quickly becoming out of reach. The jobs that used to support them have gone overseas, and those jobs cannot and will not return, ever.

At the same time, consumer debt is skyrocketing. People can't afford to save money. Additionally, costs associated with criminal charges (along with the ancillary increase in court fees, fines, and other related mandatory legal expenses) are completely crushing the lower classes. Corporate-run prisons and jail "services" (even telephone communications) are being handed over to soulless legal fictions whose only purpose is to make profit, morals, ethics, and corporate citizenship be damned. Given the high rate of unemployment across the board, employers are expecting perfection from employees regarding their past criminal and credit histories. The smallest dark mote in one's criminal or credit history irrevocably locks more and more people out of the job market, housing, and even education.

A glance at any chart or graph showing wages vs. dollar value paints an even bleaker picture.

What economists need to understand is that things are very, very different now, not only economically but also socially. I predict it will be decades before we are where we were even in the late 90s. Classical economic theory has been an abject failure, because it does not take greed into account. From my dim memory of Econ 101, basic human nature was never even addressed, because the (incorrect) assumption was- and is- that consumers make rational choices, and that is not and has never been the case.

In short, any recovery- jobless or otherwise- will take much longer to occur than economists are willing to believe. I will probably have completely gray hair by the time things get better and, for many in my generation, retirement simply will not occur.

Consumer debt is dropping. It decreased at an annual rate of 7 1/2% in April 2009. Revolving credit has decreased by 11%. With household debt decreasing for the first time since the 1950's, people are projected to save money at a rate of 3-5% this year. That figure has been below zero for the past few years.

The outlook is not as dire as you purport. History shows us that every recession is followed by a period of growth, some faster than others, but nonetheless, we will see a period of growth. It is a cycle that cannot be broken due to the basics of economic
theory.

You can doom and gloom all you want, that's your right, just as I can state the facts that I find. Believe me, I took a major hit!
I am 54, and lost over a quarter million in the market downturn. No doubt stocks were over-valued before the crunch, but these companies still have worth, and we are seeing them settle to their norm. Eventually, they will start to rise again, and we will see growth.

Yes, this is my opinion based on history and the facts that I glean from the multitude of sources out there. I try to stay on top of things the best I can, but as you know, you can find a source to justify every position. The old addage "Nothing ventured, nothing gained" still holds true today. If people do not take risks investing, even now, they will not gain much. Actually, I believe that the present is an opportunity for people to make money as stocks have leveled out, making the risks much smaller. I am still trading, but mostly I am just sitting on what I have got. I see good times ahead.

You have the money to invest, therefore, things look a LOT rosier to you than they do to me and most other people. As an investor with the money to lose, you have no conception of how bad things really are for those of us who are hanging on my our fingernails and toenails. Economic facts are one thing, but the reality on the ground is vastly different.

None of the facts you would use to support your case have any real meaning to me, because, simply put, none of it applies. To wit:

"people are projected to save money at a rate of 3-5% this year." No, people who have the money to save will save money at that rate. Most of us don't have that cash, and if we do, we're spending it on frivolous items such as food, rent, car payments, and so on. The only thing your posts prove to me is that the investor class sees our economy through very different filters than those of us who do actual work.

....are for Americans as a whole, and do not pertain to any one class. I do know there are regions in the U.S. that are decidedly worse off than others, and will take much longer to recover. Those in the rust belt are experiencing very tough times right now, and the outlook for them looks bleak, at best. But, over time, they too will recover.