“Fed Views Recession Near End”.
These headlines have been appearing in the media for the last couple of days. Alongside this almost celebratory tone most economists are seeing green shoots in the economy amidst a general impression that the recession is on the ebb.
Yes the economy, that is businesses and large organizations are stabilizing and are returning to the black. Key indicators all point to that (refer my previous article of July 30th). While there were job losses in July, the job losses have almost halved from the figure of 650,000 jobs lost per month before May 2009. This seems to be another indicator that recovery is around the corner.
So with the recession “near at end”; a question does arise as to when the unemployment figures will drop?
Before proceeding to this question one needs to understand the current scenario. I would like to briefly touch upon the unemployment figures for July in the US which was 14.5 million or 9.4% of the work force. This has been almost unchanged for the second consecutive month. This is paradoxical as it would mean that there no job losses, while the job losses were to the tune of about 330,000 in July.
http://www.bls.gov/news.release/empsit.nr0.htm (*)
We have 330,000 jobs lost in July 2009, but the unemployment rate remains static at 9.4%. So what is the story? About 2.3 million persons were marginally attached to the labor force in July. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (*) So if we add that figure to the unemployment figure which is 14.5 million, the actual unemployed total stands at around 16.8 million or 10.8% of the workforce.
This is an indicator the unemployment situation is graver then reflected.
“The world, indeed, is like a dream and the treasures of the world are an alluring mirage! Like the apparent distances in a picture, things have no reality in themselves, but they are like heat haze.” - Buddha
There is a feeling amongst many; that companies are not hiring because they want to be on firmer footing and consolidate themselves before they revert to hiring. Is that the whole truth, or is there another scenario(s) at hand?
A point which has been overlooked is the impact of the whole sale merger of companies in such areas as the BFSI (Banks, Financial Services and Insurance) Sector, the Pharma sector etc. These mergers have shut down many jobs, most of them permanently. So while companies are stabilizing on their balance sheets, the benefit to the labor force in terms of enhanced employment is a question mark.
The road to higher employment is going to be a very long and rocky one and to revert to 4-5 % unemployment levels will take years. Since many of the old job opportunities are less likely to emerge, skill up gradation and skill enhancement is of the utmost importance.
These headlines have been appearing in the media for the last couple of days. Alongside this almost celebratory tone most economists are seeing green shoots in the economy amidst a general impression that the recession is on the ebb.
Yes the economy, that is businesses and large organizations are stabilizing and are returning to the black. Key indicators all point to that (refer my previous article of July 30th). While there were job losses in July, the job losses have almost halved from the figure of 650,000 jobs lost per month before May 2009. This seems to be another indicator that recovery is around the corner.
So with the recession “near at end”; a question does arise as to when the unemployment figures will drop?
Before proceeding to this question one needs to understand the current scenario. I would like to briefly touch upon the unemployment figures for July in the US which was 14.5 million or 9.4% of the work force. This has been almost unchanged for the second consecutive month. This is paradoxical as it would mean that there no job losses, while the job losses were to the tune of about 330,000 in July.
http://www.bls.gov/news.release/empsit.nr0.htm (*)
We have 330,000 jobs lost in July 2009, but the unemployment rate remains static at 9.4%. So what is the story? About 2.3 million persons were marginally attached to the labor force in July. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (*) So if we add that figure to the unemployment figure which is 14.5 million, the actual unemployed total stands at around 16.8 million or 10.8% of the workforce.
This is an indicator the unemployment situation is graver then reflected.
“The world, indeed, is like a dream and the treasures of the world are an alluring mirage! Like the apparent distances in a picture, things have no reality in themselves, but they are like heat haze.” - Buddha
There is a feeling amongst many; that companies are not hiring because they want to be on firmer footing and consolidate themselves before they revert to hiring. Is that the whole truth, or is there another scenario(s) at hand?
A point which has been overlooked is the impact of the whole sale merger of companies in such areas as the BFSI (Banks, Financial Services and Insurance) Sector, the Pharma sector etc. These mergers have shut down many jobs, most of them permanently. So while companies are stabilizing on their balance sheets, the benefit to the labor force in terms of enhanced employment is a question mark.
The road to higher employment is going to be a very long and rocky one and to revert to 4-5 % unemployment levels will take years. Since many of the old job opportunities are less likely to emerge, skill up gradation and skill enhancement is of the utmost importance.
“When you are asked if you can do a job, tell 'em, 'Certainly I can!' Then get busy and find out how to do it.” Theodore Roosevelt, 26th US President
6 comments:
Let’s understand why does unemployment rise during a recession?
Unemployment rises almost entirely because jobs become harder to find. Recessions involve little increase in the flow of workers out of jobs. Another important finding from new data is that a large fraction of workers departing jobs move to new jobs without intervening unemployment.
The separation rate is nearly constant while the job-finding rate shows high volatility at business-cycle and lower frequencies. Modern theories of fluctuations in the job-finding rate. The challenge to these theories is to identify mechanisms in the labor market that amplify small changes in driving forces into fluctuations in the job-finding rate of the high magnitude actually observed.
Developed over the past two decades, the wage moves to offset driving forces and the predicted magnitude of changes in the job-finding rate is tiny. New models overcome this property by invoking a new form of sticky wages or by introducing information and other frictions into the employment relationship.
The worst of the recession might be over. Unfortunately, the same can't be said for the labor market.
Most forecasts predict that Americans are in for a long, painful slog as they try to get back to work. Some forecasts don't have the unemployment rate getting back to "normal" levels of around 5 percent until 2014.
It always takes a while for jobs to start appearing after a recession, but the wait could be particularly long this time around because of the unique nature of this downturn and the severe damage it has done to the labor market.
UNEMPLOYMENT is likely to worsen over the next few years even if governments manage to dig the world out of the recession. here are good reasons for believing that the green shoots of economic recovery are real and will stabilize the world's financial position but jobs will continue to be lost while few jobs will be created,.
"The level of employment and unemployment is of far greater importance than gross domestic product," "We're looking at a period that can only be a profound disappointment."
Here are questions and answers about why the darkest days might still be ahead for workers.
Q: If the economy starts improving, why won't the unemployment rate start dropping right away?
A: Unemployment has always been a "lagging indicator," meaning its improvement tends to lag behind broader economic growth. That's partly because hiring is expensive, and companies want to wait and make sure they are on solid footing before they start bringing in new employees.
An example: On the heels of a downturn, a factory manager wants to make sure an increase in orders isn't just a short-lived fluke before he hires more workers to ramp up production.
Q: How long does job growth typically lag behind the end of a recession?
A: The lag time has been growing. After almost every recession since 1960, unemployment started to drop only one or two months after the recovery started. But that changed after the recession ending in 1991, after which there was a 15-month lag. After the recession of 2001, the lag was 19 months. This time around, most economists aren't expecting the lag time to be that long, but it will be years before the unemployment rate hits pre-recession levels.
Q: Why is the lag time for job creation getting longer?
A: One big reason is the changing nature of U.S. recessions.
Downturns used to be cyclical, meaning demand dropped for whatever reason, and companies responded by cutting production and laying off workers. When demand picked up, companies simply rehired employees and got back to business.
That's not the case anymore. A 2003 study by the Federal Reserve Bank of New York found that downturns are increasingly "structural," meaning the economy itself changes and jobs disappear for good.
Many U.S. manufacturing jobs lost in 1991, for example, never came back, but instead were shipped overseas. Internet firms disappeared altogether during the recession of 2001. After this recession, millions of jobs will likely disappear in the construction, finance and auto making sectors.
This increases the period needed for new jobs to be created, and for workers to get trained to fill them.
Q: So when will jobs start being created?
A: hiring should start in the second half of 2010. But there is a lot of damage to undo before the unemployment rate starts to fall.
About 6.7 million jobs were lost during this downturn, the steepest labor market decline since at least World War II. That has left 14.5 million workers unemployed as of July. do not expect the unemployment rate to sink toward 5 percent until 2014.
Q: What will it take to put a real dent in the unemployment rate?
A: The economy needs to produce a net gain of roughly 127,000 jobs each month just to absorb new job seekers created by population growth and immigration. To create more jobs than that requires some strong economic activity. But most analysts expect growth to be weak over the next four years.
Q: Why will growth be so weak when the economy recovers this fall, as many analysts expect?
A: One key reason is that this recession had its roots in the financial sector. Growth will be hobbled because of the deep damage banks suffered during the financial meltdown last fall, which will make them less likely to lend money and fuel the economic recovery. That means credit, which is the lifeblood of economic growth, will be slow to come even after orders start to pick up and businesses want to expand.
Q: Is there anything that could hasten job creation?
A: options are limited because it will take the private sector years to recover. Government spending on direct hiring, such as hiring teachers for educational programs or construction workers for infrastructure development, could create jobs in the near term.
Does a long wait ahead unemployment to battle over employment with still declining of capital management systems? High time we need AN answer
Hi Sunil,
I don't think recession is over yet and I would blame large corporate for the same. In past few years these companies had completely moved away from fundamentals and mistook market growth as function of their good practices . What this lead to was mad rush in hiring ,wasteful expenditure and unhealthy borrowing and lending of funds. While worst might be over however till about mid 2011 the sentiment will be weak. You will see more consolidation and correction. So Employment opportunities in general will be weak.
All is not so sad though ,some of the companies who were traditionally run over years and had good accounting practices now see these times as opportunity to grow and expand and have started hiring in critical functions.
These are my best guess estimates in general however we will have pocket of brilliance among these too..
1.BFSI - We will see lot more consolidation and hence hiring will remain weak and may show some sign of recovery end 2011.
2. Manufacturing. : Developed nation - End 2011. Asian hubs - End mid 2010.
3. Pharma : I guess these are less impacted so they continue to hire in R&D and Technical function.
4. Infrastructure: Asian and developing nation : Hiring end 2009 and Developed nation end 2010.
5. Telecom : Developing nation hiring will accelerated around December 2009, Developed nation will see a turn in around mid 2010.
6. ITES and BPO : Hiring has started in countries like China and India.
7. Information Technology : Hardware Industry is at cross road on two accounts 1 . Recession ( Weakening demands) and paradigm shift in computing. So you will see Software ,SaAS,IaAS and other service industry pressing the pedal mid 2010 however Hardware industry will see some major shake downs and consolidation. The hiring will grow in countries like Korea ,Taiwan however there will be sharp decline and further layoff in Americas and Europe not only because of continued weak demand but also mad over staffing in past years
Phew !! This is great question and an ideal for group discussion :o).
With Warm Regards
Hi Sunil,
I don't think recession is over yet and I would blame large corporate for the same. In past few years these companies had completely moved away from fundamentals and mistook market growth as function of their good practices . What this lead to was mad rush in hiring ,wasteful expenditure and unhealthy borrowing and lending of funds. While worst might be over however till about mid 2011 the sentiment will be weak. You will see more consolidation and correction. So Employment opportunities in general will be weak.
All is not so sad though ,some of the companies who were traditionally run over years and had good accounting practices now see these times as opportunity to grow and expand and have started hiring in critical functions.
These are my best guess estimates in general however we will have pocket of brilliance among these too..
1.BFSI - We will see lot more consolidation and hence hiring will remain weak and may show some sign of recovery end 2011.
2. Manufacturing. : Developed nation - End 2011. Asian hubs - End mid 2010.
3. Pharma : I guess these are less impacted so they continue to hire in R&D and Technical function.
4. Infrastructure: Asian and developing nation : Hiring end 2009 and Developed nation end 2010.
5. Telecom : Developing nation hiring will accelerated around December 2009, Developed nation will see a turn in around mid 2010.
6. ITES and BPO : Hiring has started in countries like China and India.
7. Information Technology : Hardware Industry is at cross road on two accounts 1 . Recession ( Weakening demands) and paradigm shift in computing. So you will see Software ,SaAS,IaAS and other service industry pressing the pedal mid 2010 however Hardware industry will see some major shake downs and consolidation. The hiring will grow in countries like Korea ,Taiwan however there will be sharp decline and further layoff in Americas and Europe not only because of continued weak demand but also mad over staffing in past years
Phew !! This is great question and an ideal for group discussion :o).
With Warm Regards
It must be true...I read it in the paper!
The headlines are no more accurate than the answers you'll get here. The unemployment rate in Ohio hit 11.2% and it's still climbing. Spending is still in the toilet. Consumer confidence is still heading downward. And as others have said - Short term loans are still difficult to get even though all of the TARP money was supposed to fix the banking mess.
Oh...and we still have a government hell-bent on spending ourselves into oblivion which means we have yet to see the inflation tidal wave or tax increases which will increase downward economic pressures. So the other shoe hasn't dropped yet.
We may see some lame recovery chatter based solely on Obamacrats bloviating about short term metrics (no trend, just a few "not as bad as last month" numbers) like a drowning man franticly thrashing at drift wood but the overall trend is still going down and I still can't find a job.
A jobless recovery isn't a recovery here at my home in Ohio.
Jeff
I would blame large corporate for the same. In past few years these companies had completely moved away from fundamentals and mistook market growth as function of their good practices .
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