March Jobs: What If Productivity Is Just Too Good?

The consensus estimates for the March jobs report is that non-farm payrolls improved by 160,000 which would decrease the unemployment rate a one-tenth of a percent or two-tenths. That would be in contrast to two years of job losses each month with one tiny exception in January. The March figures will be distorted by the number of people being hired to perform the Census. These new workers, put on the federal payroll and their wages covered by the taxpayers, won’t fool economists although the numbers may look good to the general public.
According to Reuters,Fed Chief Bernanke told Congress last week that a jobs recovery might not be happening. He said that it is possible that “the productivity gains were greater than we thought they would be when firms were able to cut their work forces and still maintain output.”

The recovery is sluggish by almost every measure including manufacturing activity, consumer sentiment, or housing and credit card defaults. The only part of the economy that is healthy is the stock market. That cannot be minimized for a number of reasons not the least of which is that people’s net worth and retirement accounts are improving and the coffers of pension funds are going up in most cases as well.  Harvard may not have to close its campus in January 2011.

But, the stock market’s impact on improving the job market is indirect at best. Even a company which benefited from the surge in equity prices so that it has more cash equivalents and short-term investments than it had last year may simply sit on those assets the way that Apple (AAPL) and Cisco (CSCO) have. It is unspent money that investors may want but boards won’t give them. What could be a benefit to the economy is stuffed into the corporate mattresses. The ten largest tech companies in America have a combined total of more than $200 billion in cash.

Many corporations that could not hire people a year or two ago can hire them now, but even healthy firms may wait well into the year to see what happens to the broader economy. There is still too much talk about a “double dip” for many business executives to feel comfortable spending on anything but the basics. Many American companies may have found that they can get along with less. The great recovery cycle that began in 2000 and accelerated in 2003 took US GDP from $9.2 trillion to just about $14 trillion last year. Many businesses were understandably exuberant and added jobs according.

But, in 2007 and 2008, companies had to test how well they could survive with their belts cinched on the last notch. Nonfarm business sector labor productivity increased at a 6.9% annual rate during the fourth quarter of 2009, the U.S. Bureau of Labor Statistics reported on March 4. The number is a remarkable example of how much an enterprise can squeeze from each of its workers.

The squeezing process is likely to go on at many companies and in many sectors. Workers are not stones and there may be more blood to be wrung out of them. People still faced with a job market in which 17% of the able-bodied are without full-time work will work longer and for less money than they have at any time in decades.

The federal government does not keep accurate statistics on how many two-family households are now one family households, but the attrition is a reason that household income is not rising. There are hundreds of thousands of homes where there are children to feed and educate with one adult out of work.  It is easy to understand that the other adult will do nearly anything to keep a job. It is an example of the leverage that employers have these days.
The March jobs figure, less the number of people hired by the government to perform the Census, is bound to be unimpressive, and the ability of companies to run successfully on fumes may depress the recovery in the jobs market for some time.

Douglas A. McIntyre