Saturday, January 9, 2010

Employment: What You Need to Know

Employment numbers released yesterday gave little solace to those looking for light at the end of the tunnel leading out of the employment house of pain.
  • Optimistic observers were expecing a push, or possibly a few jobs created; in reality an additional 85,000 jobs were lost.
  • The unemployment rate stayed at 10%.  But that was only because workers who simply stopped looking were dropped from the stats. Back them in again and we'd have unemployment at @10.3%
  • The number of underemployed American rose to 17.3%.
All in all, a picture of employment that is at best stuck on neutral, with little major moves one way or the other.

One of the few bright spots, however dimly glowing, was the increase in temporary employment.  That stat is one of the leading (and by that we mean forward looking) employment indicators.  Employers who are still jitery about the reality and strength of a recovery will tend to hire temps to meet demand before they commit to hiring back full time workers.  So we always see an increase in temp demand before we see an increase in hiring. Temp employment increased for the fifth month in a row.  This seems to indicate that employers are at the stage where they are trying to 'make do' with the work force they have and picking up slack with temps rather than new hires.  Temp professionals will tell you that temporary hiring leads full time hiring by 4-6 months.  So we may be toward the end of the very first phase of healing and temp hiring could transition to full time hires in the next 1-3 months.

Bottom line: no great news for some time on the employment front.  But the bottom is no longer dropping out.

So why has the market been rallying?  I hate to write this, as it sounds callous and unfeeling, but the story--at least in the stock market--may no longer be about 10% unemployment.  The story may be what is happening at the intersection of companies who have cut operating costs to the bone with with the 90% who are still employed.

Here's the thesis: 6-9 months ago, as unemployment was skyrocketing, no one knew if their job was safe.  So even those with jobs began to hunker down in an extreme way.  Now, as unemployment seems to be stabiizing at current levels, those who have made it through with their jobs intact, while still in frugal mode, do not feel as much need to be in hyper-frugal mode.  Spending thus gets freed up, ever so slightly. You combine that with the extreme cost cutting that many business have imposed on their operations and you get a situation where even small increases in the top line translate into healthy increases in the bottom line.

That positive earnings dynamic, even in the face of overall employment headline malaise, seems to be the subtle underlying message the market is delivering.

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