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Non-Manufacturing Based Economy Cannot Quickly Expand

June 20th, 2013
in econ_news

from Challenger, Gray & Christmas, Inc.

A new survey of human resources executives provides further evidence of just how difficult it is in a non-manufacturing-based economy to quickly increase employment following a downturn and why it could be another year or more for the unemployment rate to fall to pre-recession levels.

Follow up:

In the survey conducted by global outplacement consultancy Challenger, Gray & Christmas, Inc., just over half (53 percent) of the human resources executives polled said their companies implemented workforce reductions as a result of the recession that began in December 2007 and ended in June 2009.  The good news is that 82 percent of companies have added new workers since January 2010.  However, while 33 percent of those hiring were able to bring back some of their former workers, 67 percent indicated that the re-staffing process started from scratch.

Meanwhile, less than half (43 percent) of the companies adding new workers have reached or surpassed the number of workers employed prior to workforce reductions.  Nearly 15 percent said they expect to eventually return to pre-layoff workforce levels. However, 43 percent indicated that their companies will meet future demand with fewer employees, suggesting that their payrolls will never return to pre-recession peaks.

“What we have come to know as ‘the jobless recovery’ may be the new post-recession norm, as employers rebuild their workforces from scratch, take more time to vet candidates, and find ways to operate with fewer workers,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

“All of these factors slow the rebuilding process, which has led many to perceive this jobs recovery as being especially sluggish.  This perception is understandable, considering that we are now four years out from the official end of the recovery and employment is still more than two million jobs below the pre-recession peak. However, the fact is that the economy is actually adding jobs faster compared to the last two post-recession recoveries.  It is just taking longer to rebuild due to the fact that we started in a much deeper hole,” Challenger continued.

According to the National Bureau of Economic Affairs, the Great Recession officially ended in June 2009.  Even after the 18-month recession ended, payrolls continued to shrink for another seven month.  Overall, the economy lost a total of 8,736,000 jobs.

“To put that in perspective, more jobs were lost in this recession than in the previous three recessions combined.  Basically, every one of the 8,030,000 jobs created between August 2003 and January 2008 plus another 700,000 were wiped out.  While both Democrats and Republican have tried to blame one another for the slow jobs recovery, the fact is that there is probably little that either party could have done to quickly re-create the more than 8.5 million jobs lost as a result of the recession,” said Challenger.

In order to have regained the more than 8.7 million jobs lost, the economy would have had to average nearly 230,000 new jobs per month for the past 38 months.  The last time the economy achieved that type of monthly employment growth in a recovery was following the 1981-1982 recession, when layoffs were heaviest in manufacturing.

Currently, the economy is averaging 162,000 net new jobs per month (through April), which is actually better than the job gains that occurred following the 2001 recession, when employers added an average of 157,000 new workers each month.  Following the 1990-1991 recession, job creation averaged just 85,000 new jobs per month during the 21 months it took to recoup the more than 1.6 million jobs lost during the recession.

“Today’s economy is simply not built for the type of accelerated hiring that would lower unemployment quickly.  The high-skill jobs being created in this recovery require longer recruiting and interviewing processes and low-skill jobs are not numerous enough to make a significant dent in joblessness.  In areas where we do see significant hiring surges, such as retail, where Home Depot recently announced plans to add 80,000 workers, the jobs tend to be seasonal, meaning temporary, which is indeed the case with the Home Depot positions.

“Through the 1980s, the heaviest job losses resulting from recessions occurred in manufacturing.  This made for faster employment growth during periods of recovery, as factories were able to ‘call back’ scores of workers to resume duties on the assembly line.  Since, the eighties, plants have become increasingly automated, millions of jobs have shifted overseas, and the economy has shifted toward one based on services and information.  When layoffs occur in these industries, the rebuilding process is seldom as simple as calling back laid off workers,” Challenger added.

“We simply do not have a sector of the economy that can create jobs as quickly as manufacturing did in its heyday.  Even when major tech firms, such as Google or Facebook, go on a hiring spree, we are talking about adding hundreds of new workers; not thousands. We will eventually reach and surpass the pre-recession peak employment level, but anyone who thought it would occur within two to four years after the end of the recession had unrealistic expectations,” noted Challenger.

 

# # #

 

CHALLENGER SURVEY RESULTS

 

Did your company reduce its headcount between December 2007 and December 2010 as a direct or indirect result of the economic recession?

Yes, we implemented a reduction in force due to the recession.

52.9%

No.  In fact, we were able to expand our workforce in spite of the economic downturn.

35.3%

No, we were able to maintain the size of our workforce through the downturn.

11.8%

 

Has your company expanded its workforce since January 2010 due to improving economic conditions?

Yes, we have been able to add new workers since the end of the recession.

82.4%

Yes, but have only hired new workers to replace individuals who left voluntarily.

5.9%

No, conditions have not improved enough in our industry to increase hiring.

11.8%

No, there is too much uncertainty about the stability of the economy to add new workers.

0.0%

 

 

If yes, did you bring back any of the individuals who were let go in previous workforce reductions?

No, we started the recruiting process from scratch.

66.7%

Yes, some of the workers hired were impacted by previous workforce reductions.

33.3%

We offered positions to some previously laid off workers, but all were re-employed or otherwise unable to accept the offer.

0.0%

 

Do you anticipate hiring back at least as many workers as were let go as a result of the economic downturn?

Yes.  In fact, we have already reached or surpassed the number of workers employed prior to the recession.

43%

Eventually, we expect to have as many workers as before the recession.

14%

No, we expect to meet future demand with fewer workers.

43%

 

For your company, what are the biggest obstacles to increased hiring?

A lack of candidates in our geographical area who have the skills required for open positions.

52.9%

Business conditions are still not strong enough to warrant increased hiring.

23.5%

Other

17.6%

Increased selectivity among department managers who ultimately make the hiring decision.

5.9%

Overwhelming responses to help-wanted ads, which require more time and effort to sort through.

0.0%

 

RECESSION COMPARISON

Length of Recession (in months)

Total Employment Loss

Months from Employment Peak to Trough

Months from Trough to Pre- Recession Level (PRL)

Average Job Gains Per Month from Trough to PRL

Total Job Gains from Trough to PRL

Total Job Gains from Trough to Next Peak

1981- 82

16

2,838,000

17

11

282,000

3,098,000

21,066,000

1990- 1991

8

1,626,000

10

21

85,000

1,795,000

24,421,000

2001

8

2,698,000

30

18

157,000

2,893,000

8,030,000

2007- 2009

18

8,736,000

25

39 and counting

162,000

6,317,000

????

 









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