Free Markets, Free People

Corporations sitting on money and not hiring despite better March unemployment numbers

It certainly wouldn’t surprise me given the unsettled business climate.  And, in fact, that’s what the Bureau of Economic Analysis is reporting – a record 1.6 trillion is being held while companies sort out what is happening in the business and financial sectors.  That, of course, means it isn’t being spent on hiring.  But there’s another reason, other than the unsettled business climate that is keeping corporations from hiring:

“Companies slashed their work forces and now find that they could function far more resourcefully than they ever realized possible,” Bianco said. “If anything, we could start to see some of the money being used to expand overseas or to acquire other companies. In either case, that does not bode well for job creation. In fact, mergers lead to job reductions unfortunately.”

A nice way of saying, it may get worse. Companies have become more efficient and productive.  Because of that, most experts I’ve read expect the national unemployment rate – the U3 – to remain in the 9% area throughout the year.  Government efforts to spur hiring haven’t amounted to much:

Alan Krueger, assistant secretary for economic policy at the US Department of the Treasury, points out that President Obama recently signed a jobs creation act known as HIRE which includes a variety of incentives. HIRE, for example, exempts companies from paying social security payroll tax if they hire someone who has been out of work for more than two months, and offers them a $1000 cash bonus if they retain the worker for a full year.

That’s not going to tip the scales and cause a company to hire if solid business reasons don’t dictate such action.  And, as pointed out in the first cite, there’s a very good reason, at least at this point, not to hire – companies have learned to live and, in some cases, prosper without the employees they slashed.

One of the great surprises of the economic downturn that began 27 months ago is this: Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek.

That means high-level gains in productivity — which in the long run is the key to a higher standard of living but in the short run contributes to sky-high unemployment. So long as employers can squeeze dramatically higher output from every worker, they won’t need to hire again despite the growing economy.

And right now, employers are indeed doing more with less and are not going to be inclined to hire more employees until it is clear that demand for their product is up, will continue to grow and requires more employees to produce their product and fulfill the consumer’s demand.

That all brings us to today’s March unemployment numbers:

The Employment report has shown good numbers throughout March today release but not as good as expected by market. NFP data has posted 162.000 new jobs in march, with a revision in the previous data to -14.000 from -36.000 in February. Market expectations were 187.000 new jobs in March. Unemployment rate remains at 9.7% in March, the same February number.

What that report doesn’t break out is the fact that the numbers are most likely inflated by the temporary hiring of census workers (and that will continue through June).  The Bureau of Labor Statistics did note it in its release:

Temporary help services and health care continued to add jobs over the month. Employment in federal government also rose, reflecting the hiring of temporary workers for Census 2010. Employment continued to decline in financial activities and in information.

So while +162,000 is obviously better than -162,000, the numbers aren’t really all that solid.  Also remember that our economy requires about 120,000 to 140,000 new jobs a month just to offset job loses elsewhere and maintain a static unemployment percentage.  And that’s pretty much what this month’s numbers show us and is the reason the unemployment percentage has remained static.  What would give us a truer picture of the rate is to remove the census hiring from the numbers. My guess is we’d still be well below the 120,000 to 140,000 threshold necessary to drop that rate.  But what the last three months may indicate is the labor market is finally bottoming out.

The point, of course, is that corporations are still in a position, driven by increases in productivity and lack of demand as well as an unsettled business environment, not to increase hiring any time soon.  The money corporations are sitting on, as noted, is going to go somewhere – most likely to increased dividends or mergers. And mergers actually mean fewer jobs, not more. Until companies see increased, well-defined and sustainable growth in demand to the point they can’t handle it with their present level of employees, they’re not going to hire no matter how many “jobs” bills Congress passes and Obama signs.

~McQ

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22 Responses to Corporations sitting on money and not hiring despite better March unemployment numbers

  • Our family-owned business has about 250 employees and has needed to hire people for about the last 9 months.

    We have intentionally not done so and are paying overtime.

    • What’s the main reason driving the decision not to hire?

      • Fear of the unknown is the number one reason…  from interest rates to health care all the way over to unionization of our industry.

        I’m not sure all the fears are justified, but it is a very old business (80 years) and still run nearly the same way it was when it was founded.  That’s both good and bad.

        We have a long history with the insurance companies, including auto and health.

        In the last 3 years we have had some huge medical claims that have affected our rates.  Instead of hiring we are looking at using contractors. 

        From the research we did companies with less than 250 employees are going to fall into a different category and we are right at the max.

        • I think a lot of companies may go the “contractor” route – 1099s. There seems to be a consensus that if they must expand, that seems to be the most intelligent way to do so and avoid much of the cost (and penalty) of hiring a new employee.

  • Without the census workers, job growth would only be about 114,000 according to Real Clear Politics.   However, it’s this way in every recession cycle.  Corporations wait, and job growth is the last thing to recover.   If corporations have money and are sitting on it for now, that’s a good sign — demand will slowly grow and corporations will then start to hire, demand grows more, hiring increases more…the recovery side of the business cycle.   Hopefully, that’s where this is headed.

    • Obviously, I need to calm you dense, excitable righties down a bit, so let me pontificate for a while with some trite, obvious, calming comments. Without the census workers, job growth would only be about 114,000 according to Real Clear Politics. However, it’s this way in every recession cycle. Corporations wait, and job growth is the last thing to recover. All is well. Obama’s magic is still working it’s way through the system, and everything is going to be fine. Now take a deep breath, and calm down, and tell your tea party friends to stop worrying about all this, so they wander off onto something else before this fall. Wise leftists are in charge, and it needs to stay that way.

      If corporations have money and are sitting on it for now, that’s a good sign. Well it is! Stop laughing! Just because people are afraid to spend money doesn’t mean they lack confidence and things might get worse! Take it from me, whose godlike powers of political science also extend to economics — demand will slowly grow and corporations will then start to hire, demand grows more, hiring increases more…the recovery side of the business cycle. Hopefully, that’s where this is headed.

      And that’s not meaningless, superficial blather. It’s analysis. Solid analysis, informed by my vast study and deep background. Well, yes, my background is in politics and international relations, and I never really studied economics, but how hard could it be for me to understand it better than thick righties? You grunt engineer types just can’t see the larger picture. You should listen to my analysis. Analysis, analysis, analysis. Which is definitely different from opinion because I have advanced degrees. If you don’t agree, you doth protest too much. {chuckle} LOL.

    • It is nice to see some job growth.  Census hiring was lighter than expected at 48K.  Hourly earning were down .1 but weekly hours were up.  Jobs were lost in areas like financial services and IT, but up (again) in health care and other services.  Temp jobs were up another 40K.  Usually that is a leading indicator of full time jobs, but this time it is not so sure.  There is a lot of caution out there on the part of small businesses.  U3 stayed the same, but U6 went up a hair (.1%) to 16.9%.
       
      There are some signs for optimism, but still a mixed bag.  Census is still planning to hire 200K, so we should have 150K to go.    We have to be aware of that because not only do we need to back the census hires out of the data, but we need, somehow, to account for their extra spending as it might apply to increased employment.
      We should acknowledge that this is not the average inventory driven recession.  This is a financial and credit driven recession.  Like the Great Depression, this takes a lot longer to work off.  I see Fannie and Freddie defaults are still rising and that Commercial real estate is in great difficulty.  That will affect the small and regional banks.

    • “However, it’s this way in every recession cycle.”

      LOL.
      In the next post you claim the stimulus is responsible for the job growth.
      Typical.

      • Yes, the stimulus was essential.  I don’t think there is any doubt on that.   Without the stimulus the cycle would have been deeper, and upturns are not automatic — the cycle can get “stuck” on down.

  • Nah, Imeme has some more business killing plans in mind that he’s trying to get off the ground – Cap and Trade next.  No danger of significant recovery any time soon.

  • But, but, but, people with money create jobs that pay people, and people use that money to buy stuff, and that grows our economy.

    This is all topsy turvy, if employers don’t higher people and create demand, but instead hire people to meet demand, then that would make consumer spending the main economic driver of the American economy, and if that’s the case, then tax breaks for the wealthy would not do anything to stimulate the economy, only more money in the pockets of consumers. That just messes up that whole supply side theory that we have been functioning under for 30 years.

    I guess this kind of explains why even when taxes were 90%, people still invested in new employees when the demand supported.

    I guess it also confirms that wealthy people accumulate capital during lean times, they don’t create jobs.

    This must be why the Clinton tax hikes in 1993 did not crumble the economy in the 90’s like the entire GOP predicted.

    • “This must be why the Clinton tax hikes in 1993 did not crumble the economy in the 90’s like the entire GOP predicted.”

      But the Clinton tax hikes also did not produce the anticipated increased revenue either.  Go to the IRS.gov site and take a look at the revenues generated for those years.  The curse of the Laffer curve?

    • Its not topsy turvy at all – they’re meeting demand and obviously making money – they have no reason to hire at this time. The consumer base is more than adequate for the supply they’re offering. The next wave of hiring will most likely come from entrepreneurs who see opportunities that will develop in existing markets – but that’s also not going to happen in an unsettled business environment. However, once the “new wave” finally begins to unfold, hiring will begin, consumer confidence will increase, demand will rise and more hiring will result. But the fact that it isn’t happening in the face of many factors doesn’t at all change the soundness of supply side theory. There is no perpetual motion economic machine. There never has been and never will be. It all runs in cycles because as changes come along in technology, society or other outside influences (like government, war, etc), markets begin the adaptive process of creative destruction. Workers are shed in one area and picked up in another. You may have noticed no one is making buggy whips anymore. And there’s usually a lag in employment as those markets rearrange and recreate themselves. That’s what we’re seeing now at some level. However – while much of the unsettled nature of the markets can be traced to the financial meltdown, it can also be traced – at least in this country – to government actions, policies, proposed regulations and proposed taxes. Until businesses see some of that settled and they can calculate their cost to their operations they aren’t going to commit to expansion and hiring. That’s Econ 101 stuff, a class that many of the inside the beltway types seem have skipped in favor of liberalism 101 or how to change the world to make it more “fair”.

      Oh, and you’re right – tax breaks for the wealthy aren’t going to do anything in an unsettled business environment. But that doesn’t mean, at the proper time, tax breaks for the wealthy aren’t a great idea and won’t spur expansion and hiring at a much greater rate than if they weren’t given. Same with corporate tax breaks. It’s all about understanding that and acting at the proper time instead of making blanket ideological promises and executing them at the wrong time economically. That’s if you’re honestly concerned about the economy, jobs and the real welfare of the people.

    • God you are stupid.  The reason there was any investment when tax rates were 90% is because everyone knew those rates were too high so congress placed literally hundreds of loopholes and exemptions thus raising the cost of compliance and increasing the use of inefficient tax shelters and the like.
       
      By the way, supply side theory is a proven fact, if you don’t believe so then just ask yourself at what rate of return would you simply not work anymore. 10%? 1%? half a percent?  No economist doubts the existence of the Laffer curve, they only argue at where the point of equilibrium is.
       
      The Clinton tax hikes hurt the economy by lowering growth, then Clinton turned around and signed the capital gains tax cut and the economy took off again.  Your idiotic belief that marginal tax rates have no effect on the economy would be laughable if it was not shared by the idiots controlling our nation.
       
      Here is something for you to chew on. When marginal rates are above 33%, in every country, and at every time period we have records for, an increase in marginal rates slowed economic growth, and a tax cut spurred growth.  EVERY TIME!  If you don’t believe me go ahead and try to find one instance for yourself when this did not happen. And even if you found one, it would be the exception to the obvious rule.
       
      But by all means, if you think we are under taxed go ahead and donate more to the government, they will accept it.  After all I am sure the wonderful bureaucrats have some pet project they can spend your money on better than you can.

  • Businesses are producing only 3 percent fewer goods and services than they were at the end of 2007, yet Americans are working nearly 10 percent fewer hours because of a mix of layoffs and cutbacks in the workweek.

    I figure that companies take advantage of times like this to trim away the least efficient employees.  Between that and the fear that probably drives the remaining workers to work harder, I guess it’s not that surprising that productivity didn’t drop as much as hours worked did.  The question is, is that sustainable?

    • “The question is, is that sustainable?”

      Companies have also taken advantage of the economic downturn to encourage those close to retirement to go ahead and punch out.  Several firms I work with have offered incentives for retirement buyouts in order to save other positions that were at risk. 

      And you also have to wonder about the “looking over your shoulder” anticipation of workers on the line who feel they are being scrutinized and, as a result, put out far more effort than normal in order to make “the man” look kindly upon them.

      But all 0f these kinds of efforts are typical of economic downturns in the past.  What concerns me most is the underlying fear of the future – inflation, stagnation, or even stagflation – that is coming down the pike.  Very few Company Execs I know have a good feeling for this administration.  They are looking down the road and, along with the potential hits they will take with ObamaCare, wondering what is the next target in the adminstration’s sights – Card Check and Cap & Tax being foremost among them and what these things will do to their bottom line.

    • As broad based as it is, I’d say “yes” at the current level. Don’t forget too, that some of the jobs that were once performed by people may have been replaced by technology, so that adds to both the productivity and the efficiency of the company and are jobs that will never be filled again.

  • Well, the election of Obama was a catastrophe. I’ve said all along that he is more of a danger to the United States than Hugo Chavez is to Venezuela. And I’d like to be able say that this is a test of American democracy, but I think his election, his nomination in fact, was already the test, and American democracy failed it. These are the consequences, and they don’t end with a bad economy and persistent unemployment.

    This guy should have been hooted off the national stage the day he tried to mount it, but the fear of race and political correctness ushered him to a nomination he shouldn’t have gotten close to and helped him win an election he should not have been in. What was visible about him was enough to disqualify him from even being mentioned, much less considered, and we don’t even know half the story about him because so much has been shuttered from public view. It appears that virtually every element of his background from the time he went to university is dubious, but never mind that, the church by itself was enough, and everyone was afraid of it.

    Well, that’s what instilled politically correct fear gets you.