Executive Briefings

Is It Recovery Yet? Depends on Your Point of View

News about the economy has been bright in recent weeks, on virtually every front except for job growth. Which raises the question: are American workers paying the price for recovery? And if they are, is it a recovery at all?

According to the National Bureau of Economic Research, the Great Recession officially ended in June of 2009. A lot of businesses wouldn't disagree. The Commerce Department's Bureau of Economic Analysis reported that corporate pre-tax profits rose at a record annual rate of $1.659tr in the third quarter of 2010. The Dow Jones Industrial Average was up 11 percent for the year, and we've seen encouraging profit reports from Apple Inc., Ford Motor Co., General Electric, Dow Chemical Co. and Caterpillar Inc., to name a few.

That's great news for shareholders and corporate executives, but what about the workers who staff those companies? Unemployment still hovers at 9.4 percent, with nearly 15 million Americans out of work. Home foreclosures remain high, and consumer bankruptcy filings were up 9 percent last year, topping 1.5 million.

Which set of numbers tells the real story? Clearly, there's a disconnect here. Part of the problem can be chalked up to the fact that new hiring always lags economic revival to some extent. The last two recessions were followed by periods of "jobless recoveries" of two to three years, but it seems worse this time around. We can't count on another housing or internet-related technology bubble to drive job growth. I've heard estimates of between six and eight years for getting back the 8 million jobs that were lost during the recession of 2007-2009. (Remember, folks - it ended more than a year and a half ago.) Considering that the current rate of hiring isn't even enough to keep up with U.S. population growth, that's got to be a major concern for job seekers.

Businesses certainly don't lack the money to hire people. On the contrary, they're hoarding cash. Part of their thriftiness is an understandable response to the choking off of credit during the depths of the recession, and banks' continuing unwillingness to lend money, especially to small and medium-sized entities. But business is also enjoying the benefits of a buyer's market in the labor sector, including the ability cut wages and benefits, and squeeze more productivity out of existing staff. At the same time, companies are spending at least some of their substantial reserves for relatively non-productive purposes such as stock buybacks and corporate acquisitions (the latter of which often lead to even lower employment levels).

Lately, there have been a few signs of life in the labor market. Ford said it would hire more than 7,000 workers over the next two years. It's not clear where those jobs will be, and the number falls far short of the 60,000 or so layoffs enacted by Ford over the past decade. But it's a good omen for the struggling American auto industry, and the economy at large. The latest ADP National Employment Report finds that private-sector employment was up by 297,000 in December 2010, although the U.S. Department of Labor says net job growth during that month was only 103,000, driven mostly by the leisure, hospitality and healthcare sectors.

So how can we tell which way things are going? One new economic report, the Ceridian-UCLA Pulse of Commerce Index (PCI), takes a unique approach to the question. It measures commercial diesel gas consumption in the U.S. Using that benchmark, the PCI's report for December, 2010 finds a 2.4-percent increase in activity over the prior month, and a 4.1-percent rise over December 2009. The authors of the report attribute the improvement to higher consumption during the peak Christmas shopping season, coupled with the restocking of inventories by consumer-goods producers.

The PCI is only a year old, but Craig Manson, index expert with Ceridian Corp., says it has already proved to correlate closely with U.S. industrial production. "We've found it's been a leading indicator for what's going on in the economy," he says.

Buttressing the PCI's conclusions is Ceridian's role as a large outsourced payroll processor, and as well as a provider of gift cards for major retailers. In the case of retail employment, Manson notes that ADP's figures finally turned positive in the third quarter of 2010, after seven straight quarters of decline. And the second quarter of last year snapped an 11-quarter slump in supplies of the plastic used for the gift-card programs.

We're not out of the woods yet, Manson admits. The third quarter's real GDP growth rate of 2.6 percent wasn't enough to cause a surge of hiring; we would need to see a rise of least 3 percent before that happens. And job growth in construction and manufacturing - areas that pay a living wage - continues to be weak.

"There's evidence that hiring has turned around," says Manson. "We still have a little ways to go in terms of economic growth, before companies feel comfortable to hire in meaningful numbers. The first thing that comes back is temps and overtime. Finally, when the economy turns around in six to nine months, we'll start to see corporations head back to their payrolls."

The sooner the better. In the meantime, I wonder whether we ought to be looking to a new definition of the word "recession" - beyond the official meaning of a GDP decline that occurs over two or more consecutive quarters. What looks like recovery to economists, academics and pundits doesn't necessarily resonate with the man or woman on the street. To be unable to find a job, pay one's bills or keep a home, while being told that your troubles are theoretically over - for many people, it just doesn't add up.

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News about the economy has been bright in recent weeks, on virtually every front except for job growth. Which raises the question: are American workers paying the price for recovery? And if they are, is it a recovery at all?

According to the National Bureau of Economic Research, the Great Recession officially ended in June of 2009. A lot of businesses wouldn't disagree. The Commerce Department's Bureau of Economic Analysis reported that corporate pre-tax profits rose at a record annual rate of $1.659tr in the third quarter of 2010. The Dow Jones Industrial Average was up 11 percent for the year, and we've seen encouraging profit reports from Apple Inc., Ford Motor Co., General Electric, Dow Chemical Co. and Caterpillar Inc., to name a few.

That's great news for shareholders and corporate executives, but what about the workers who staff those companies? Unemployment still hovers at 9.4 percent, with nearly 15 million Americans out of work. Home foreclosures remain high, and consumer bankruptcy filings were up 9 percent last year, topping 1.5 million.

Which set of numbers tells the real story? Clearly, there's a disconnect here. Part of the problem can be chalked up to the fact that new hiring always lags economic revival to some extent. The last two recessions were followed by periods of "jobless recoveries" of two to three years, but it seems worse this time around. We can't count on another housing or internet-related technology bubble to drive job growth. I've heard estimates of between six and eight years for getting back the 8 million jobs that were lost during the recession of 2007-2009. (Remember, folks - it ended more than a year and a half ago.) Considering that the current rate of hiring isn't even enough to keep up with U.S. population growth, that's got to be a major concern for job seekers.

Businesses certainly don't lack the money to hire people. On the contrary, they're hoarding cash. Part of their thriftiness is an understandable response to the choking off of credit during the depths of the recession, and banks' continuing unwillingness to lend money, especially to small and medium-sized entities. But business is also enjoying the benefits of a buyer's market in the labor sector, including the ability cut wages and benefits, and squeeze more productivity out of existing staff. At the same time, companies are spending at least some of their substantial reserves for relatively non-productive purposes such as stock buybacks and corporate acquisitions (the latter of which often lead to even lower employment levels).

Lately, there have been a few signs of life in the labor market. Ford said it would hire more than 7,000 workers over the next two years. It's not clear where those jobs will be, and the number falls far short of the 60,000 or so layoffs enacted by Ford over the past decade. But it's a good omen for the struggling American auto industry, and the economy at large. The latest ADP National Employment Report finds that private-sector employment was up by 297,000 in December 2010, although the U.S. Department of Labor says net job growth during that month was only 103,000, driven mostly by the leisure, hospitality and healthcare sectors.

So how can we tell which way things are going? One new economic report, the Ceridian-UCLA Pulse of Commerce Index (PCI), takes a unique approach to the question. It measures commercial diesel gas consumption in the U.S. Using that benchmark, the PCI's report for December, 2010 finds a 2.4-percent increase in activity over the prior month, and a 4.1-percent rise over December 2009. The authors of the report attribute the improvement to higher consumption during the peak Christmas shopping season, coupled with the restocking of inventories by consumer-goods producers.

The PCI is only a year old, but Craig Manson, index expert with Ceridian Corp., says it has already proved to correlate closely with U.S. industrial production. "We've found it's been a leading indicator for what's going on in the economy," he says.

Buttressing the PCI's conclusions is Ceridian's role as a large outsourced payroll processor, and as well as a provider of gift cards for major retailers. In the case of retail employment, Manson notes that ADP's figures finally turned positive in the third quarter of 2010, after seven straight quarters of decline. And the second quarter of last year snapped an 11-quarter slump in supplies of the plastic used for the gift-card programs.

We're not out of the woods yet, Manson admits. The third quarter's real GDP growth rate of 2.6 percent wasn't enough to cause a surge of hiring; we would need to see a rise of least 3 percent before that happens. And job growth in construction and manufacturing - areas that pay a living wage - continues to be weak.

"There's evidence that hiring has turned around," says Manson. "We still have a little ways to go in terms of economic growth, before companies feel comfortable to hire in meaningful numbers. The first thing that comes back is temps and overtime. Finally, when the economy turns around in six to nine months, we'll start to see corporations head back to their payrolls."

The sooner the better. In the meantime, I wonder whether we ought to be looking to a new definition of the word "recession" - beyond the official meaning of a GDP decline that occurs over two or more consecutive quarters. What looks like recovery to economists, academics and pundits doesn't necessarily resonate with the man or woman on the street. To be unable to find a job, pay one's bills or keep a home, while being told that your troubles are theoretically over - for many people, it just doesn't add up.

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