Businomics Blog

Job Seekers: There's Hiring Going On!

There is a surprising amount of new hiring going on.  That may seem strange, given the job losses in the economy, but the widely-quoted figures show net job growth.  An unemployed person does not need a net new job, he or she just needs a job.  Here's an illustration.  (Inspired by a chart in Forbes Magazine.)

The blue section of the chart shows hires, counting all hires for any reason: new position or replacement of existing worker.  The red shows all layoffs, firings, quits, and deaths of working persons.  The net change is shown in black, and that's the headline figure. 

Even though unemployment is high, there is hiring going on every day, all across America.  More good news for job seekers: a lot of the unemployed are so discouraged they are not making a particularly strong job search effort.  That gives a leg up to the unemployed who pound the pavement and make the calls.  As I said in a recent newspaper interview, the first wave of employment growth will go to those people who do the best job of pretending not to be discouraged.

Tight Inventories Limiting Sales

Business have trimmed inventories significantly--and that's starting to bite them in the sale.  Here's the raw data:

There was good reason to cut inventories: sales were falling.  This is a recession practice I recommend in Businomics.   However, the tight inventories are now limiting sales gains.

Here's a personal example.  I bought a car last spring, and now I want snow tires and wheels for it.  But the tire store I love did not have my size in the type of tire I wanted. 

(You may be surprised that anyone would love a tire store, but if you live in the Pacific Northwest, you know who I'm talking about.  I have been a very, very loyal customer for 20 years.  I don't comparison shop other stores, I just to in and buy.)

So my fav store lost a sale.  I went elsewhere.  No deals to be found, so some sales are probably not going to anybody at all.  By the first real snowfall, there will be no studless snowtires to be found anywhere, despite people clamoring for new tires.

From an economic standpoint, this will limit economic growth.

From a business standpoint, my favorite store has double whammied itself.  First, it lost a sale.  Second, it gave me a reason to go to a competitor.  That's like telling your girlfriend she should date other guys--not a way to build a strong relationship.

I know money is still tight, the economic outlook is still uncertain, but if you cannot serve your loyal customers, you will have no loyal customers.

Economic Forecast for 2010: Updated November 2009

I've updated my economic forecast for 2010.  Here's a chart showing quarterly growth rates:

Key features: consumer spending on durables dips this quarter (after cash-for-clunkers), then grows at a pace that mixes conservative attitudes with pent-up demand and limited credit availability.  I spent more time this round modeling inventories.  It's still a big wild card, that can swing quarterly numbers hugely.  For instance, an optimistic--but not implausible--figure for the change in inventories this quarter adds another 1.5 percentage point to GDP growth.

This growth rate is well above productivity growth, so we'll make progress lowering the unemployment rate.  Note huge, sudden progress, but gradual improvement.

I'm assuming that the Fed will slow it's stimulus, preventing an upside breakout.  With this in place, the inflation rate should be tame.

This is strong enough growth that businesses should conduct a Recovery Readiness Audit, that surveys all issues tied to business expansion: sales, operations, finance.  I can help your company with that; give me a call.

Bank Credit Standards: The Tightening Is Over

Banks have pretty much stopped tightening credit standards, but that doesn't mean they are easing--maybe not, at least.  The chart below is based on the Federal Reserve's Survey of Senior Loan Officers.  The question asked is whether they tightened or eased credit standards.   The chart shows "net percent," which is the percent who said that tightened minus the percent who said they eased.

In this survey, as in recent surveys, no one said he had eased.  It's all tightening or staying the same.  Nonetheless, the chart clearly shows the worst of the tightening is over.  Also note how few banks ever admit to easing credit standards.  We know credit was eased tremendously in the mid 2000s, but that hardly shows up in the chart.  Talking about tightening makes better conversation with one's regulators.

Unfortunately, the data don't allow us to calibrate where we stand now compared to, say, 2003.  We know that a lot of tightening was justified to get past the easy credit of the boom, but it is hard to say whether the banks have gone overboard and over-tightened.  Maybe, or maybe they've just returned to a moderate stance.

The other issue that we don't fully understand: when banks say they have tightened credit standards, to what extent are they merely reporting that nobody meets even the old standards?  Remember that most bank loans are real estate related.  A bank that kept its lending standards unchanged might very well be making few loans today, because so few real estate development projects pencil out.

What does this mean for borrowers?  First, run more cash flow projections than you ever have before.  Consider a second drop in sales, consider a moderate increase in sales, and a major increase in sales.  Get an idea for which scenarios put you short of cash.  (Hint: you may run short of cash if sales fall, or if sales rise sharply.)  Second, talk to your banker early about potential cash needs.  It's never good to surprise him or her.  If your banker will not be able to help you, start looking at alternatives real soon.

U.S. Economy Expands: My Interview on the NewsHour with Jim Lehrer

You can watch the interview of Diane Swonk, Shirley Leung and myself.  You can also read a transcript.

GDP 3rd Quarter 2009: We're Out of Recession, But Still Weak

The numbers for the third quarter look nice, or what passes for nice these days.  GDP rose smartly, pretty much confirming the general view that the recession is over (more on that below).

The details surprised me a bit, even though the total growth was in the ballpark of my forecast (4.2 percent, compared to 3.5 percent growth actual).  Consumer spending was stronger than I had expected, even with Cash for Clunkers.  That may not be sustained.  However, inventories contracted much more than I had expected.  We are definitely going to get an inventory turnaround soon, and that will add quite a bit of strength to the economy.

I'll update my forecast and share it with you tomorrow.

Now about the end of the recession.  We economists define the recession as the period when the economy is going downhill.  That period is over.  However, we have not recovered all the ground that we lost.  Think of it this way: we fell down a 10-foot hole, we hit bottom and took one step upward.  We are out of recession, but we're still nine feet down a ten-foot hole.

International Migration & Remittances & Economic Growth

The Economist magazine has a nice video graphic about international migration and remittances.  One interesting observation: the countries that people are leaving in the greatest numbers are not the poorest countries.  It turns out that moving from one country to another is expensive.  So as a country's economy improves, out-migration increases (more people can afford to move).  This is beneficial to the home country, as remittances flow in, and also to the destination country, which now has the benefit of less expensive labor.  The Economist is silent, however, on the economic impact on the home country of bright, ambitious people leaving.

Profiting from the Recovery: an Interview

I was interviewed by the Optimistic Bear about profiting from the recovery.  He has other interviews on the page covering economics, investments, and start-ups.

Securitization and Economic Incentive to Foreclose or Modify

My blog post with an explanation of securitization has been very popular for over a year now. The website ProPublica has the same concept with a different slant (hat tip to the Big Picture).   Their chart includes notes on why the senior CMO holders have different interests regarding foreclosure or modification than do the junior holders.  Here's the chart:

Housing Starts: The News is Not As Good As the Headline, Nor As Bad

I try not rant in this blog.  I really try.  But here's the Wall Street Journal headline:  "Housing Starts Rise, but Remain Subdued."  On the other hand, CNBC says, " Producer Prices, Housing Starts Post Surprise Drops."

Huh?  Did housing starts rise, or did they drop?  Turns out, they effectively did neither.  Oh, there was a tiny change from last month to this month, but really, really tiny, so much that they were effectively flat.  Look at the chart and see if you don't agree.

The moral of the story: the newspaper headlines tell you approximately nothing.