Thursday, January 13, 2011

Sturm und Drang!

This morning the Dept of Labor released the latest unemployment insurance claims:

 In the week ending Jan. 8, the advance figure for seasonally adjusted initial claims was 445,000, an  increase of 35,000 from the previous week's revised figure of 410,000. The 4-week moving average was 416,500, an increase of 5,500 from the previous week's revised average of 411,000. 

The advance number for seasonally adjusted insured unemployment during the week ending Jan. 1 was 3,879,000, a decrease of 248,000 from the preceding week's revised level of 4,127,000. The 4-week moving average was 4,056,500, a decrease of 72,000 from the preceding week's revised average of 4,128,500.

Jobless claims "jumped" was the headline from one news source:

The number of Americans filing for first-time unemployment benefits rose unexpectedly to 445,000 from 410,000 in the prior week, the Labor Department said on Thursday.

What boggles me is the unexpectedly comment, as turn on any channel or flip through any business periodical and the stark truth is revealed.  Analysts routinely say that companies cutting costs by "reducing" their workforce makes a company attractive to investors. These, mind you, are also the analysts that say that the economy is on the brink of collapse.

Investors are “rewarding” the efficiencies small businesses adopted to battle the recession because the changes have gone “hand and hand with better profitability,” said Michael Shaoul, chief executive officer of New York-based Oscar Gruss & Son Inc., which provides research to institutional investors.

Small businesses “definitely have cut costs in terms of reducing workforces,” so when “you do get demand rebounding, their margins are going to be expanding and that makes a lot of these companies attractive,” said Joseph Kremer at Fifth Third Asset Management in Cleveland, who helps oversee $250 million in small- and micro-cap stocks and recommends Old National Bancorp in Evansville, Indiana, which is acquiring Monroe Bancorp of Bloomington, Indiana. “That’s good for their efficiency, but not necessarily good for the unemployment rate.”

Despite the evidence of a moribund rebound, we will see the obligatory wailing, gnashing of teeth, headlines predicting the end is nigh, markets reacting irrationally. Pundits, prognosticators, snake oil salesmen and what not slinging their wares on one medium or another. Then comes the inevitable revision, and like a scripted drama in the news, everyone breathes a sigh of relief that the game of musical chairs can go on for a little while longer.

Right now, Peter is being robbed to pay Paul. The rate of employment, capitalism and growth are acutely linked. The increase in earnings and by extension profitability we have seen in the corporate sector over the last two fiscals years have come at the expense of higher unemployment.  Whilst we can quantify that in the larger publicly traded companies that have to report these things, small businesses are the engine room of the this nation, and right now they are figuring out how to increase efficiencies and boost margins without hiring more full-time workers.

“The recession definitely made me take a pause in terms of wanting to hire,” said Frey, 39.  
He’s unlikely to add full-time workers even after business improves because “I’ve never been more profitable,” he said. “We’re sitting on more than double the amount of cash than we’ve ever had.”
I believe the "productivity savings" experienced to date are coming to an end.  Companies will shortly resume hiring, as essentially employees are customers.  So when you next see a "breaking" news headline concerning the economy, take a breath, have a chuckle and remember - it is how the game is played.

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