Hiring Delay After Recession Not Unusual
Economists say the recession began in December 2007 and probably ended sometime last summer. That means the U.S. economy has been growing for more than half a year, producing more goods and services.
Yet employers continue to cut jobs, and the unemployment rate remains at a high 9.7 percent. This kind of hiring lag is by no means unusual.
At Quadrant Engineering Plastic Products in Reading, Pa., employees in goggles and blue T-shirts stand hunched over their workstations. The building dates to Victorian times, but the factory floor is a noisy sea of expensive manufacturing equipment churning out high-end plastics. A few years ago, business was booming and Quadrant took on new workers.
"Then, just like that, the recession hit, so we had to turn these guys out," says process technician Dave Wagner. "That was really tough to do because the guys were really coming up to speed — the newer ones — and we had a lot of good prospects there, and it was a shame we had to let them go."
For a while, business dropped off. But orders began picking up last year. Quadrant has rehired some people and restored workers' hours. But spokesman Kress Schwartz says the company, whose customers include medical equipment, semiconductor and industrial equipment manufacturers, isn't taking on any new workers.
"When we see growth in those industries, we'll staff up," says Schwartz. "As an organization, we use all sorts of tools to try and see what those specific industry segments are doing, and they all have wonderful indicators, and those indicators show some growth, but not a level of growth that would require us to knock out a wall and add onto the facility."
Quadrant is waiting to see whether the economic rebound is for real before it hires. That's pretty typical as recessions end.
"The natural lag in employment is that companies need to have profits and need to see an improvement in their top-line growth before they make the commitment to actually hiring," says Diane Swonk, an economist with Mesirow Financial. She says that even when companies do start hiring, they do it gradually.
"What they initially do is work their existing labor force longer hours, add on additional overtime hours, and then when they finally feel confident enough that the recovery they're seeing is real, they actually dip their toe and make the commitment into the pool of hiring," Swonk says.
The result is a hiring lag, and there's lots of precedent for it. The last recession ended in November 2001. Unemployment kept rising until June 2003, when it hit 6.3 percent. The recession before that ended in March 1991, but unemployment didn't peak for 15 months. It was a huge political headache for then-President George H.W. Bush, who had to convince a skeptical public that things really were improving.
Today, Democrats are in virtually the same position — waiting for job growth that history suggests is bound to come eventually. How long it will take to turn around is a matter of some debate. Economist Lakshman Achuthan of the Economic Cycle Research Institute says the job market has already begun to recover about six months after the recession ended.
"That's much, much faster than you saw jobs growth coming out of the last two recessions, where it took well over a year," Achuthan says. "The last recession, it took 21 months until you had sustained positive jobs growth. We're going to have that right here at the beginning of 2010."
Increased Hours And Temporary Hiring
Others are more skeptical. Economist Sean Snaith of the University of Central Florida says there are still a lot of lingering problems confronting the economy, including a wave of mortgage foreclosures, uncertainty about taxes and federal regulation, and a weak commercial real estate market.
"With all of these things going on, the right thing — the right response for these bankers — is really to hunker down and to sandbag and to try to wait out the storm, as opposed to get out there and start freely lending once again," Snaith says.
As a result, credit is harder to get, which is especially tough on small businesses that create a lot of jobs. The good news is that companies are doing more temporary hiring, and employees are working longer hours. Traditionally, those are harbingers of a job recovery. But as long as employers remain skittish about their prospects, that recovery will probably be a weak one.
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