A Pickup in Orders, Not Hiring

Another green shoot emerged Monday to support the notion that business activity is rebounding, ever so gradually. But even where orders are picking up, managers appear dead-set on avoiding new hiring. Managers, just like consumers, are still lacking in confidence.

In its report for September, the Institute for Supply Management said on Oct. 5 that its index of service-sector activity grew by 2.5 percentage points from August, to 50.9%, after 11 consecutive months of contraction. Anything above 50% indicates growth. The index measures such things as new orders, order backlogs, and employment. Sectors that reported a rise in business activity included mining, construction, retail, transportation and warehousing, educational services, and wholesale trade, according to the ISM. The report helped drive up stock prices, with the Standard & Poor's 500-stock index rising 1.49%, to 1,040.46.

"We'll have to see month over month for the forthcoming months if this is sustainable—I believe that will be the case," says Anthony Nieves, author of the survey. The fact that new orders increased in September's report by 4.3 percentage points to 54.2%, he says, "tells us what's in the pipeline…and that business activity should be equal to or higher next month."

These same industries, however, continued to shed jobs, according to the latest employment report issued Oct. 2 by the U.S. Labor Dept. Construction jobs were among the hardest hit, with a net reduction of 64,000 seasonally adjusted employees in September over August. Retail trade lost 38,500 jobs, and transportation and warehousing lost 15,500. The big surprise was in educational services, where employment fell by almost 17,000. Education had been one of the few areas of strength until recently, along with health care.

Keeping an Eye on Costs The total loss in nonfarm jobs last month was 263,000, bringing the unemployment rate to 9.8%, the Labor Dept. said—worse than what most economists expected and up from a loss of 201,000 jobs and a 9.7% unemployment rate in August. The U.S. labor market is now experiencing the longest string of rising unemployment since the Great Depression, as payrolls have fallen for 20 consecutive months.

What's keeping companies from hiring, even when business appears to be coming back? That's simple: They don't want to add costs when there's no assurance revenues will keep rising.

Ray DeGrass, plant manager at Dragon Products' cement plant in Thomaston, Me., doesn't have a better outlook for 2010 than he did in 2009. This year, Dragon Products laid off 20% of the plant's employees permanently, and temporarily furloughed 30% to 50% of the remaining 110 workers during seven weeks as the factory ran at two-thirds capacity. The plant, owned by Giant Cement Holding of South Carolina, ships cement by rail, truck, and barge to construction projects throughout New England and Canada. "Construction just seems to be a dinosaur," says DeGrass. "It takes a lot to get it moving again."

A Buyer's Market for Employers Businesses that resorted to inventive measures to keep their doors open—cutting workers' hours, salaries, and benefits—are now taking an equally cautious approach to expansion. Some are hiring more part-time workers, figuring they can boost hours if conditions continue to improve. Margo Andros, who has owned a lingerie boutique in New York's Grand Central Terminal called Pink Slip since 1999, has hired two part-time workers in the past week as she prepares for the holiday season. But that's after she laid off a full-time manager over the summer. Her business hasn't picked up nearly enough to support an expansion she made last May, doubling her space, to 800 square feet. So Andros is looking to possibly merge positions, knock some of her nine-person staff from full- to part-time, and pay less for management positions.

Andros sees more talented and experienced applicants, and they're so eager to secure employment now that they'll accept less money than before. "It's like the housing market," she says. "You can buy a house at a bargain right now, and you can get an employee at a bargain, too."

Betting that consumers will desire more flat-screen televisions, smartphones, and netbooks as holiday shopping picks up, Best Buy CEO Brian J. Dunn has said the company will hire more seasonal staff this holiday season than last year. But Best Buy (BBY) is hardly indicative of big retailers' broader outlook, according to Philadelphia-based consultancy Hay Group. In a survey released earlier this month, Hay Group found that 10 of the 25 U.S. retailers it polled plan to hire 5% to 25% fewer seasonal workers this year—and more than half plan to lay off workers. At the same time, most of those companies are seeing a rise in job applications.

Waiting for Clarity A survey of 28,000 employers by Manpower (MAN) released on Sept. 8 found that nearly 70% did not anticipate hiring in the fourth quarter. Just 12% said they would be adding new workers. The projections are the bleakest since Manpower began the survey in 1962. The only good news for job seekers is that while jobs continue to vanish, they are doing so at a slower rate.

So when will hiring pick up? When the shape of the recovery is clearer, says Ed Newman, president of the Newman Group, a talent-consulting unit of Korn/Ferry's (KFY) Futurestep. He thinks employment will rise in the next three to six months, as new fiscal years bring fresh budgets. "Everyone's trying to figure out when to jump in with both feet," he says. "It's a bit of a chicken-and-egg game right now, because of the uncertainty."

Jonas Prising, president of Manpower's operations in North and South America, says job growth will start as soon as the second quarter of next year. "Companies will only hire when they see a real uptick in their business which they believe is sustainable and not just a blip," he says. "This means that they will not hire, as compared to other recessions, just in anticipation of a robust recovery."

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