Is pressure to finally start hiring building up in the executive suite and among investors?
Business Week online reports: “What Investors Want Now: Jobs”
No doubt about it, investors like to see Corporate America squeezing the most it can out of its employees. As the economy has bounced back, productivity, or output per worker per hour, has continued to expand. Meanwhile, stock prices have risen 50% from their October, 2002, lows as a smaller, more productive workforce seems to have turbocharged corporate profits. While productivity grew 4.2% last year, profits jumped 18.2% — the biggest increase since 1995. Gains garnered through investments in technology and outsourcing generally result in a stronger bottom line because they keep a lid on staffing costs — typically a company’s single biggest expense.
Investors also like to see a trend that generally lowers productivity growth. And that trend — hiring — has been maddeningly elusive in this economic recovery. “Labor is consumers, and you can’t get top-line revenue growth if you don’t have people spending money,” says Sherry Cooper, global economic strategist at BMO Financial Group in Toronto.
A tension exists between job growth and productivity, she points out. As the U.S. economy continues to expand at an anual rate of about 4%, the friction is palpable in executive suites. On one side are the bean-counters, who want to push existing employees to do even more. On the other side are maxed-out managers, who want to add workers to the payroll.
“THE LINCHPIN.” With so much productivity growth over the last few years and no job growth, something has to give. And CEOs who want to see stock prices move higher in 2004 probably will start to listen to their stressed workers, say the pros. It will be job growth, not further productivity gains, that most likely boosts share prices for the rest of 2004. . . .
This may be just the time to start adding people, too. Businesses appear to have wrung about as much as they can out of employees. Productivity growth in the fourth quarter of 2003 declined to a 2.7% annual rate from 9.5% — a 20-year high — in the previous quarter. This sharp quarter-to-quarter slowdown suggests that companies have hit a wall. “I think we’re at the limit of pumping up productivity without hiring new workers,” Cooper says. “You are ending up with a lot burned-out people.” . . .
Not everyone is convinced that job growth will be key to a continuing recovery. Donald Luskin, chief investment officer at TrendMacrolytics in Menlo Park, Calif., argues that the unemployment rate is a very tame 5.6% by historical standards. “We are in a perfectly fine, better-than-average recovery,” he contends, and it won’t matter to the stock market what happens with jobs or productivity as long as profits rise. . . .
Indeed, the unemployment rate used to be the key benchmark. So what’s happened? Why aren’t we happy it’s down to 5.6%?
Jerry Bowyer has an answer — it’s politics (duh!) he writes in National Review Online: In Defense of the Unemployment Rate; The media have switched jobs stats midstream
Since the president’s tax cut was fully implemented last May the unemployment rate has dropped rapidly from 6.3 percent to 5.6 percent today. Everyone knows this. It’s one of the fastest declines in unemployment in decades. The problem is, this is a presidential-election year. Hence, improving economic statistics will not be accepted by the mainstream media no matter what those statistics say. . . .
Remember how business and financial reporters measured the health of the job market back in the ’70s, ’80s, and ’90s? Right. They used the unemployment rate. . . .
During the deep recession which occurred between 1981 and ’82, before the Reagan tax cuts were officially implemented, the Gipper was hammered with “high unemployment” rates. During the recession of ’91, Bill Clinton, by way of a willing media, was able to attack George Herbert Walker Bush using unemployment rates that hovered around 7 percent.
The point here is that the nation has historically focused on the unemployment rate when it comes to measuring the health of the jobs market. All of a sudden, however — just when the unemployment statistics have given us an unbroken series of good tidings — we’ve seen a switch to the importance of the payroll jobs survey as the preferred metric of the labor climate.
Opinionated and right-wing? Perhaps. But certainly interesting.
