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Civilian employment data has long been recognized as the lagging indicator of economic recovery from a recession - and for good reason. Businesses operating without the means to maintain or augment their workforce numbers and/or compensation are hesitant to invest in such draining factors affecting their business.

That being said, there is a disturbing disconnect between some economic indicators that suggest conditions are ripe for business investment in labor and negative employment data recently released by the Department of Labor. As you already know, unemployment has been creeping up to its present 10.2% mark since it began rising in the spring of 2008. Below is a chart detailing unemployment activity during the past several quarters:

 title=

*Source: Haver Analytics

The $64,000 question is: When will unemployment begin to recede? According to recent data related to nonfarm productivity, labor, Business Fixed Investment (BFI), and Net Cash Flow, perhaps the answer rests with private-sector businesses decision-makers. Please follow me below the fold for a look.

If there is a lesson to be learned from the economic expansion of the late 1990’s, it is the need for Business Fixed Investments to be as balanced as possible with Cash Flow to maximize profits and grow both labor and wage outlays. Below is a chart displaying the historical comparisons of these two economic indicators:

 title=

*Source: Haver Analytics

As you can see, during the peak of the economic boom from late 1998 to the first quarter of 2000, Business Fixed Investment and Net Cash Flow were near or above 10% y/y. This means that businesses were not only pulling in tremendous amounts of revenue and profits, but they were investing in their businesses. Not coincidentally, the unemployment rate dropped dramatically during this time as indicated in the graph below:

 title=

*Source: bls.gov

Fast forward to October of 2009 and take a good look at the 09Q2 data for BFI and Net Cash Flow. Year over year, cash flow has actually increased by nearly 10%. However, BFI has decreased by nearly 20%.

In addition, take a look at the most recent nonfarm productivity and labor data released by the BLS:

 title=

*Source: Haver Analytics

Worker productivity increased by 9.5% annualized, while unit labor costs have decreased by 5.2%.

This data begs the question: Where is all the money going?

I know many economists are giving businesses a pass on employment numbers, but the numbers suggest that we should be giving them a closer look. The conditions are ripe for a jobs recovery thanks to the hard work and productivity of the American worker. Factory orders and construction spending are up. Worker productivity is at its highest level since 2003. Existing labor costs are at a minimum. There is no reason for businesses to be holding back cash that could be putting people back to work and making an investment in both their own microeconomic recovery and the macroeconomic recovery of the nation.

For all the conservative bleating about government holding back the success of the private sector, all signs point to the fact that sufficient resources exist for businesses to pull themselves back to prosperity and hire more workers and/or compensate existing workers in a more equitable fashion befitting their productive contributions. Perhaps it’s time to point the finger in a different direction to identify who is really keeping this recession recovery jobless.

References

Bureau of Labor Statistics. (2009). Retrieved from: http://bls.gov

Econoday. (2009). Retrieved from: http://econoday.com

Originally posted to Democratic Tribune on Tue Nov 17, 2009 at 07:14 AM PST.

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Comment Preferences

    •  Those major corporations who could afford (2+ / 0-)
      Recommended by:
      manwithnoname, island in alabama

      to take up the slack are not going to do it.  Not when they can make the Democrats look bad!  

      Smaller businesses that might want to hire are being choked to death by a lack of credit.

      The only way to create jobs in this atmosphere is direct government hiring or getting money to local banks and telling them to get it into the economy.

      There will be no cooperation from big business or the Republicans to set things right for the working class.  This whole exercise has been to crash the economy and put workers at the mercy of the corporations.

  •  we don't need the workers anymore (4+ / 0-)

    at least that's my best guess, as a serial entrepreneur and currently one of the under-employed...

    We've outsourced a great number of jobs, and it's easy to point fingers at that. (At some point we may wish to reconsider our corporate masters' decision that this continent needs no manufacturing capacity.)

    We've failed to acknowledge that some of our workers are tool smart, not computer smart.

    But mostly we're in the midst of a transition as wrenching as the first Industrial Revolution, and businesses no longer NEED the number of employees they once did. Technology has made me obsolete at least twice so far in my working days.

    "Good Lord, how can the rich bear to die?" -- Nikos Kazantzakis

    by Shocko from Seattle on Tue Nov 17, 2009 at 07:26:52 AM PST

    •  And it depends on how you measure (3+ / 0-)
      Recommended by:
      nargel, AnnCetera, QuestionAuthority

      Productivity really should be measured as the value of production per labor hour.

      Too often if you look at the data, what gets touted as productivity is value of production per worker (i.e. just work them longer hours and don't hire anybody) or value of production per dollar of labor cost (i.e. hold the wages down).

      While economists don't look at it this way, business analysts and the media that report their statistics often do.

      50 states, 210 media market, 435 Congressional Districts, 3080 counties, 192,480 precincts

      by TarheelDem on Tue Nov 17, 2009 at 07:49:35 AM PST

      [ Parent ]

      •  I don't trust business analysts or the media... (2+ / 0-)
        Recommended by:
        TarheelDem, AnnCetera

        to tie their shoelaces right, let alone explain economic activity in an objective manner. They all have vested interests in outcomes.

        My only interest is in analyzing data - and the bulk of the economic data indicates that businesses are profitable and their workers productive, yet they refuse to invest back into their businesses or the workers responsible for the productivity.

        http://democratictribune.com/

        by Democratic Tribune on Tue Nov 17, 2009 at 08:10:32 AM PST

        [ Parent ]

  •  Supply-sidism is not dead (4+ / 0-)

    We are in a consumer-demand driven recession that is caught in a vicious cycle of layoffs and the resulting decrease in consumer demand leading to more layoffs.  This is throughout the economy.

    On Wall Street, the TARP money and Federal Reserve action has reinflated the asset bubble, causing financial institutions to think they have made money when they only have inflated asset prices such as stock prices, especially stock prices for financial assets.

    And the Congress?  Still caught up in supply-sidism, pushing tax cuts and spending cuts -- 535 little Herbert Hoovers.

    And the White House  -- more little Herbert Hoovers.

    And the states -- 50 little Herbert Hoovers trapped by state constitutions.

    And what is the White House doing?  Calling for a "jobs summit" in December to permit the fiscal scolds to do for job creation what they did for healthcare during the "healthcare summit".  The risk is that instead of creating jobs, this summit will provide fiscal scolds the platform to make the argument for cutting Social Security and federal funding of healthcare subsidies, such as Medicare.

    Meanwhile nobody is hiring anyone to do the immense amount of infrastructure work that has been neglected for thirty years of "fiscal prudence" and "cutting government spending".

    It's very simple.  The way to create jobs is to create jobs--to hire people to do what needs to be done.  It worked for FDR.  Why are the current crop of Congressmen, especially the Democrats, so dense?

    50 states, 210 media market, 435 Congressional Districts, 3080 counties, 192,480 precincts

    by TarheelDem on Tue Nov 17, 2009 at 07:45:47 AM PST

  •  Yes, point the finger with a campaign to (1+ / 0-)
    Recommended by:
    QuestionAuthority

    "be patriotic, hire a worker!"  That'll put them in the hotseat.  If every company hired one or two new employees, we'd get our economy moving. I've been thinking we should do something similar to what was done in the depression and WWII.  Simple phrases, like "We can do it!", on posters, kept moral up and people working together to bring this country back. Why can't we do that again?

  •  A brief perspective from a small biz owner. (6+ / 0-)

    I don't have a lot of time to write all that is going on in my area and with my business because I have to get to the bank to transfer funds so our paycheck will clear today!

    That sums up part of what is going on with many small businesses today. We are spending a lot of time on cash management because the banks are not loaning as they used to.

    As for new jobs, we are in off-season here and cut everyone's hours because the business is not here. Until business increases, we won't see any new jobs.

    As for productivity, we have become lean this year and managed to be profitable through August. Unlike last year where we pissed away all profits. That's productivity in a small business.

    Take these main points and multiply them and you have a sense of why there are no new jobs yet and probably not coming anytime soon. IMHO.

    •  Clarification. (2+ / 0-)

      I mentioned covering paychecks above. Those are checks of the company employees. I won't be able to cash my checks - which are 1/2 salary right now - until maybe Christmas time. The owners don't get paid during these times. Many, many business owners in my area are doing the same. Running their business with no pay and depleting their savings to do so.  

      Banks really suck right now. More than ever.

    •  I understand your perspective...I really do... (3+ / 0-)

      But when Net Cash Flow increases nearly 10% while worker productivity increases 9.5% annualized, it sure seems as though businesses are sitting on profits while many Americans suffer without jobs.

      http://democratictribune.com/

      by Democratic Tribune on Tue Nov 17, 2009 at 08:07:33 AM PST

      [ Parent ]

      •  I think small business is certainly buffering (2+ / 0-)
        Recommended by:
        greenchiledem, QuestionAuthority

        cash flow against uncertainty.  I remember working for a very large (still in business) corporation a long while ago, and every year when the annual report came out, I'd find the profit figure and the revenue figure and divide these individually by the number of employees to see the revenue per employee and the profit per employee numbers.  One year, I computed that each employee (taken in this generalized way) was contributing about 1 million dollars to profit.  That seemed to me to be a pretty good number.  Was it highly productive?  

        On the small business level, I've worked for several, and cash flow is always hard to deal with, and now that banks are not lending, it's even harder, if not impossible to manage.  Most small businesses I'm aware of always run close to the bone anyhow.  Removing the ability to get short term money has got to kill these business's plans not to mention stability.

        I can also mention that prior to Obama's election, several business people I knew said they were making plans to lay off in anticipation of an Obama win..this was a year ago October 2008. For what it's worth.

        •  Now see, I hear that last paragraph all the time. (0+ / 0-)

          The only problem is, we were operating under the Bush Budget until October. They were laying people off while still receiving the so-called "benefits" of Bush tax policies. Now, they are seeing incredible increases in Net Cash Flow and worker productivity, but they're sitting on the cash.

          Investment in business is necessary if such businesses (and our private-sector economy) is to thrive. Workers can only carry this recovery so far.

          http://democratictribune.com/

          by Democratic Tribune on Tue Nov 17, 2009 at 08:33:59 AM PST

          [ Parent ]

          •  More investment will not happen (0+ / 0-)

            until the business evironment is less risky -- until recovery is clear.  That's why unemployment always lags behind recovery.  Adding employees is a risk, especially when you are not sure whether the business is there.  If you wait until it is clear that the business is there BEFORE you invest -- i.e., hire -- it makes the adding of employees less risky.

            Business investment is all about lessening risk.  

            •  No, business investment is all about... (1+ / 0-)
              Recommended by:
              island in alabama

              maximizing on productivity and profits to build stronger and enduring businesses. Would the business giants of today have risen to their current positions if they had decided to sit on profits?

              Imagine the late 1990's economy if businesses hadn't maximized on their profits by hiring more workers and paying higher wages (Remember, Median Family Income increased by an average of over $3,000 per family during those years). The economic downturn at the turn of the decade would have decimated this country's economy instead of the modest downturn we experienced.

              http://democratictribune.com/

              by Democratic Tribune on Tue Nov 17, 2009 at 08:54:26 AM PST

              [ Parent ]

              •  It's the maximizing profits part (1+ / 0-)
                Recommended by:
                Democratic Tribune

                that is the key here.  When business is sure that adding employees will add to profits, they will -- and not one second before.  

                Right now, business is not sure that the recovery is strong and lasting (hell, nobody is).  They are not going to add employees now only to find that the business to justify additional employees is not there.  They are going to wait until after it becomes clear that the need -- the business -- is there BEFORE they add employees.  That's the way it always happens.  That's why, in a recovery, job figures are always the last indicator to show recovery.  

                •  Again, the only problem with that is... (0+ / 0-)

                  if productivity decreases, they will have even less Net Cash to invest with.

                  We all understand that employment is always the last indicator to rebound. My problem with that lag as compared to recovery from other recessions is the supporting indicators are there to encourage investment. Sitting idle out of fear could prolong this recession for years.

                  •  coffeetalk makes good points... (0+ / 0-)

                    His/her point about hesitation on the part of some businesses is valid. Not all businesses are sitting fat. I just think they do themselves and this economy a disservice by failing to act while the time is right.

                    http://democratictribune.com/

                    by Democratic Tribune on Tue Nov 17, 2009 at 09:06:54 AM PST

                    [ Parent ]

            •  So in other words, businesses should grow fat... (0+ / 0-)

              off the fruits of their productive labor and invest NOTHING in new additions to their workforces?

              Doesn't that run contrary to the improvement of a market economy?

              •  Business does not make decisions (1+ / 0-)
                Recommended by:
                QuestionAuthority

                based on what is good for the economy on a whole.  A business makes decisions based on what is best for that particular business.  If they think it is risky for that business at this point in time to add more employees, they won't, and they have no obligation to, no matter how good it might be for the economy as a whole.  

                That's why any stimulus directed toward private sector jobs -- if that's what the administration decides to do -- needs to give business an incentive to add jobs.  

                •  With all due respect, you need to read the... (0+ / 0-)

                  diary a little closer. I specifically mentioned the microeconomic salience of business investment when they have the means to do so.

                  Businesses stand to benefit greatly if they invest profits in additional labor resources. This has been the bedrock policy of successful private enterprise for over a century.

                  http://democratictribune.com/

                  by Democratic Tribune on Wed Nov 18, 2009 at 06:51:39 AM PST

                  [ Parent ]

  •  Why are diaries like this not Rec'd up? (1+ / 0-)
    Recommended by:
    greenchiledem

    This person has just laid out detailed quantitative data outlining culpability on the part of businesses for the lack of a jobs recovery. Is this not worthy of recognition?

    Perhaps if he threw in some pooties and wuzzles, he might be worthy of the Rec List...

  •  Here's the problem (2+ / 0-)

    Businesses will add jobs when then they are confident that the business is there and that adding jobs will make them money.  Only then, and not one second before.  See the discussion by the small business owner above.  

    When they are confident that they can make money by adding jobs, they will -- no matter which party holds the White House and Congress. No rational business says, well, I could make more money by adding jobs but I won't because it will make things look worse for the Democrats.  That's just ridiculous.  No rational business would ever, ever do that.    Business is all about making money.  They will do whatever is rational and legal to make more money.  

    Unemployment always lags behind recovery because businesses are inherently conservative in the economic sense (not necessarily the political sense, although they can be.)  In the economic sense, adding jobs is a risk -- and they want to be pretty sure the business is there -- i.e., a good recovery is underway -- BEFORE they add jobs.  That's what's happening.  Business is looking for the turn around BEFORE it takes the risk of adding more employees.  That is so that the adding of employees is just a little less risky.  

    To imply, as some here seem to be doing, that businesses would be better off (i.e., make more money) by adding jobs, but that business is engaged in some scheme to turn away those profits in the hope that they will make the Democrats look bad is just absurd.  

    •  Just to be clear, I'm not attaching a political.. (1+ / 0-)
      Recommended by:
      QuestionAuthority

      rider to this. It's clear by the increases in factory order and construction spending that businesses could benefit by adding additional productive workers to their payrolls. Likewise, businesses that depend on technological productivity could do the same.

      The problem with sitting on Net Cash Flow is productivity can not and will not continue to roll at the pace it is now. You can only squeeze so much out of even the most productive workers.

      Herbert Gintis and Samuel Bowles have a book out there called Democracy and Capitalism that explains this paradox in greater detail than I could ever include in a diary. Capitalism doesn't result in economic success if businesses don't invest profits back into their businesses or the businesses of others.

      http://democratictribune.com/

      by Democratic Tribune on Tue Nov 17, 2009 at 08:50:58 AM PST

      [ Parent ]

      •  All of that is true, of course (0+ / 0-)

        but the question is timing.  Business will eventually reinvest, including adding jobs. However, in all recoveries, the adding jobs part is the last thing to happen.  This recovery is no different.  

        Business is just waiting until it is very clear that recovery is strong and lasting.  That could take another year.  Business as a whole never adds significant numbers of jobs at the beginning of a recovery, which (under the best case scenario) is where we are now.  

        •  But that could backfire in a big way... (0+ / 0-)

          Remember, this surge in productivity is almost certain to recede at some point. What will their motivation be to invest at that point?

          Better to take advantage of a terrific opportunity (i.e. increased Net Cash Flow and productivity) and invest while the water is hot rather than lose your business because you were scared of where the economy would or would not go.

        •  There are too many positive indicators... (0+ / 0-)

          to believe that we're not in a substantive recovery. The environment is ripe for a jobs recovery if businesses will have the courage to invest in themselves.

          http://democratictribune.com/

          by Democratic Tribune on Tue Nov 17, 2009 at 09:08:11 AM PST

          [ Parent ]

        •  The critical factor may vary a bit (0+ / 0-)

          depending on the type of business.  Some businesses require frequent short term loans as part of their business model.  Construction, for example, of anything larger than a backyard bbq requires a construction loan near the beginning of the cycle.  The great majority of these loans are very safe in nature and not considered risky or extreme in context.  When the banks with full coffers use their cash to buy other banks (or other corporations) or buy lobbyists and/or influence instead of issuing loans that gives us an entire sector of the economy that has been fiscally kneecapped and is laying off key people rather than hiring folks.  I'm sure that other sectors have similar, structurally inherent issues.

          Torture is for the weak. After all, it is just extended wheedling.

          by nargel on Tue Nov 17, 2009 at 10:37:48 AM PST

          [ Parent ]

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