Analysis: December 2011 BLS Jobs Report

The US unemployment rate experienced a sharp drop to 8.6% (from 9.0%), a 2.5 year low; the broader underutilization rate continued its downward trend, decreasing to 15.6% (from 16.2%).
• A net +120k jobs were created in November, in line with consensus estimates; as another dose of good news: September and October payrolls were collectively revised upwards by 62k jobs.
• The total number of unemployed workers declined to 13.3M (from 13.9M); long-term unemployed, those who have been out of work for 6+ months, remained flat at 5.7M (43.0% of all unemployed).
• Average hourly earnings decreased 0.1% to $23.18 (+1.8% on an annual basis…far below the US’ current inflation rate: 3.5%); the average workweek decreased to 33.6 hours.

Service with a smile
• Service-related sectors experienced significant gains: professional and business services (+33k), leisure & hospitality (+22k) and health care (+17k) continued to trend upwards.
• The retail sector increased (+50k) with the most gains coming within clothing (+27k) and electronics/appliances (+5k) stores.
• Manufacturing (+2k) and construction (-12k) remained relatively unchanged.
• The public sector shed an additional 20k jobs with widespread losses at the federal/state/local levels; the Postal Service also continued to downsize (-5k).

What’s in store? Key watch items…
To say that the past couple weeks for global financial markets have been a roller coaster would be an understatement. Here’s the (long-term) good and the bad:

On the bearish side:
• Central bank actions…what’s the end game? While central banks’ coordinated efforts eased strains in European financial markets, we must remain wary of the long-term effects of their intervention on commodities priced in the US Dollar and the global economy. Energy and metal (gold/silver/copper) prices have been trending upward; rises in oil prices will continue to be a barrier to economic growth.
• Euro…glad to know ya? The breakup of the Euro Zone currency union could prove catastrophic, driving investors “flight to safety” away from weaker economies (the PIGS countries) and causing other collateral damage (e.g., asset write downs, civil unrest, etc.).

On the bullish side:
• A walk is as good as a hit. According to the Fed’s recent Beige Book report, 12 of 13 bank regions reported slow to moderate growth with modest increases in consumer spending, stronger tourism activity, steadily expanding manufacturing and stable salaries. While this by no means a home run for the US economy, any improvements in growth are welcome at this point.
• China opening the flood gates. China’s move to cut its banks reserve requirements, the first in almost three years, could provide a valuable catalyst to their suddenly sagging trade and real-estate sectors and the Chinese consumer. Analysts estimate the 0.5% rate cut to 21% will free up ~$61B for Chinese banks to lend/invest in their economy.

Analysis: November 2011 BLS Jobs Report

The US unemployment rate slightly ticked downwards to 9.0% (from 9.1%); more importantly, the broader underutilization rate decreased to 16.2% (from 16.5%).
• A net +80k jobs were created in October, slightly below consensus estimates of a 100k increase – not enough to offset the roughly 100k new workers entering the workforce each month; August and September payrolls were revised upwards by 102k jobs.
• The total number of unemployed workers held steady at 13.9M; long-term unemployed, those who have been out of work for 6+ months, decreased by 370k to 5.9M (42.4% of all unemployed).
• Average hourly earnings increased 0.2% to $23.19 (+1.8% on an annual basis…far below the US’ current inflation rate: 3.8%); the average workweek remain unchanged at 34.3 hours; both metrics remain suppressed by the ongoing slack in the labor market.

Modest gains throughout the private sector; storm clouds persist
• Professional and business services (+32k), leisure & hospitality (+22k) and health care (+12k) continued to trend upwards.
• As a potential harbinger of things to come: manufacturing (+5k) remained flat for the third straight month, signaling decreased demand; temporary help (+15k) also remains well below its previous highs.
• The retail sector increased (+18k) with the most gains coming within general merchandise stores (+10k); this sector has added 156k jobs in the past year.
• The public sector shed an additional 24k jobs with most losses coming at the state level; thankfully, losses within education were not as significant.

What’s in store? Key watch items…
Aside from the ongoing “As the Euro Zone Debt Crisis Turns” saga, several other items are worth monitoring:
On the bearish side:
• Penny wise, pound foolish? While systematic belt tightening in the US and Euro Zone is warranted to get these economies “fiscal houses in order”, the long-term impact of austerity efforts (particularly the scale and abruptness of the cuts) is cause for concern. Economists forecast austerity may shave a couple percentage points off of GDP annually. Furthermore, strict capital standards being imposed on banks (to help them weather potential shocks to the financial system) will decrease much needed credit to businesses and consumers.
• Still waiting for Godot (aka the US economic recovery). The Fed’s revised GDP figures – 2012 downgraded to 2.7% vs. previous estimates of 3.5% – highlight heightened concerns about the health of the US’ recovery (Note: GDP of 2% is needed to keep the unemployment rate steady); unemployment rates are expected to remain elevated at 8.7% vs. previous estimates of 7.8%.

On the bullish side:
• China’s soft landing. Although growth slowed during Q3 (to 9.1% vs. 9.5% in Q2), Beijing appears to have effectively engineered a soft landing for their overheating economy. Furthermore, Chinese housing prices (another key watch area) as well as other asset bubbles continue to moderate.
• US consumer sentiment. If we use household spending as a proxy for consumer sentiment, then US consumers may be feeling better about their financial situations. Increased consumer spending helped produce Q3 GDP of 2.5%, quelling fears of a double-dip recession. The downside: US’ savings rate decreased to 3.6%, marking a level not seen since 2007.

The carrot or the stick: how would you motivate employees?

Picture a company where every unit of output from the start to the end of your workday is measured, compared against your peers and publicized real-time via an electronic monitor for all to see. Furthermore, those who fall behind the pack are ostracized and run the risk of losing their jobs. For some, this kind of workplace setting is not too uncommon. For others, myself included, this kind of environment is hard to fathom and highly unsettling. (Note: I admit I may be in the minority here.)

I raise this issue as a result of reading LA Times reporter Steve Lopez’s article “Disneyland workers answer to 'electronic whip'". In it, Lopez recounts Disney’s very public productivity-spurring practice depicted above. While I’m not here to judge Disney for employing this management technique, it’s interesting to ponder what is the more effective way of motivating your employees - by the carrot or the stick.

While the answer will largely depend on your business and industry (TCR…typical consultant response), let’s say for argument sake that you are working for a global company that operates in the knowledge economy…where long-term success is contingent on your employees’ ability to harness their expertise and know-how. Conventional wisdom says managing via the stick might not be a very good idea as it could impede collaboration, strike fear in the heart of your organization and run counter-cultural and generational (for the younger generations in the workforce) for that matter. However, what if you were to assess and publicly track employees’ ability to share ideas and help colleagues solve problems…could that motivate employees and spur productivity? Taken in that vain, possibly. In fact, many companies practice some form of this albeit not as overtly. Disney may be onto something…

Moneyball

For those of you who haven’t read the book or seen the movie starring Jonah Hill (and some guy named Brad Pitt), Moneyball is a pretty endearing story about how Oakland Athletics General Manager Billy Beane applied unorthodox statistical analyses (now known as Sabermetrics) to field winning teams. By assessing talent through seemingly obscure statistics such as Batting Average on Balls in Play, Ultimate Zone Rating and Value Over Replacement Player, Beane was able to uncover the proverbial diamonds in the rough. His success is indisputable: Oakland made the playoffs five times during the 2000’s despite a team payroll that was one eighth the size of the New York Yankees’.

So what relevance does this have to Forces@Work? I raise the Sabermetrics concept because Moneyball may hold value for talent management and acquisition professionals. What if HR leaders deduced and applied their own Sabermetric-like statistics when assessing talent? True, many companies use competency models, workforce analytics and other sophisticated assessments (e.g., Gallup, Hogan, etc.). Many other more progressive companies have tried to take it to another level (e.g., Google’s Project Oxygen, all the great I/O Pscyh work at P&G). However, it still seems like we’re still only the scratching the surface (valid and comprehensive HRIS data being a significant limiting factor).

If we suspend disbelief for a minute and envision a utopic world, potential HR Sabermetrics could consist of:

Business Impact: Revenue (or Productivity) Over Replacement Professional
Utility: Range Factor (a skill-based metric used to assess the number of functions/areas the individual can operate)
Leadership Communication: NERD (a statistic used to quantify players’ aesthetic value…could potentially be used as a proxy for charisma)
Contribution: win share (a statistic used to determine how much an individual contributed to a team’s success)

And the list goes on and on… Anyone interested in collaborating on this with me?

Don't Ask, Don't Tell?

A WSJ article that I read got me thinking. No, not about the recently repealed policy governing sexual orientation in the military, but rather about whether or not managers have an obligation to communicate an employee’s high potential (HIPO) status or lack thereof.

According to a recent Towers Watson study of 316 North American companies, over two thirds formally identify HIPOs. However, only 28% of the companies surveyed actually tell their employees they’ve been designated as such.

An interesting debate has recently been taking place (it’s probably been going on for a while, however, this topic has only piqued my interest lately). While proponents say that telling is a great strategy for engaging and retaining your HIPO employees, opponents fear that communicating the HIPO tag could foster a sense of entitlement and divisiveness between the haves and have-nots.

Personally, I’m in the “Do Tell” camp. Reason being, in the uber-competitive war for talent, leaders must do everything (legally) possible to retain their top talent. Knowing one’s status is a lot better than leaving employees to wonder…and possibly grow disenchanted. Of course, communicating one’s HIPO status should come with a bunch of strings (e.g., designation is revocable, no guarantees, what you must do to maintain your HIPO status). However, in the long term, I think it would a lot easier and more effective to manage HIPOs who know vs. don’t know (and leave).

What say you?

Analysis: BLS October 2011 Jobs Report

For the third straight month, the US unemployment rate remained steady at 9.1%; the broader underutilization rate increased to 16.5% (from 16.2%).

• A net +103k jobs were created in September, surpassing economists' consensus estimates of a 60k increase; July and August payrolls were revised upward by ~100k jobs (Note: While any jobs increase is good news, this figure reflects the 45k striking Verizon employees who were not accounted for in August).
• Approximately 14.0M persons remain unemployed; long-term unemployed, those who have been out of work for 6+ months, remained flat at 6.2M (44.2% of all unemployed).
• The labor-force participation rate, the share of the US population in the jobs market, increased slightly to 64.2% (from 64.0%).
• Average hourly earnings increased to $23.12 and 1.9% on an annual basis.

Gains/losses…the usual suspects

• Professional and business services (+48k; temp. help: +19k), health care (+44k) and retail (+14k) trended positively; one welcomed surprise: construction (+26k).
• Government (-34k) and manufacturing (-13k) continued their “September swoons”. (Note: The US Postal Service’s financial difficulties, along with state/local government austerity, will continue to weigh on the government sector).

What’s in store? Key watch items…

On the bearish side:
• Sources of US job growth. If we zoom out and look at where job growth has been primarily coming from over the past year – health care and temporary help - this does not inspire confidence in a meaningful economic recovery.
• Manufacturing. The global manufacturing sector, which previously powered the global economy out of recession, continues to decelerate. The negative trend in new orders means that companies are working off their backlogs from earlier in the year and are struggling to attract new business. The net effect: a (potential) vicious cycle where decreasing demand in advanced economies (US, EU) affects growth in developing economies (Asia) and vice versa.
• Global GDP. The International Monetary Fund (IMF) predicts global growth of 4% for the next two years with continued growth in the “BIC” countries offsetting the US and EU woes. However, growth could be further impaired if countries fail to address their debt crises and rising inflationary pressures.

On the bullish side:
• Credit Card Debt. As a potential sign of improving consumer demand and sentiment, a recent study by Cardhub.com showed that consumers racked up $18.4B in credit card debt in Q211. That’s 66% higher than a year ago and more than four times greater than two years ago.
• Small Business Hiring. According to a September survey of 7500 US businesses conducted by Pepperdine University and Dun and Bradstreet, 41% of small firms said they plan on expanding their payrolls within the next six months (vs. 38% who said they won’t and 21% who remain unsure). Among the areas of demand – sales and marketing. Given that small businesses employ about half of the private sector, this may provide a much needed catalyst.

A Path Forward?

A couple weeks ago, Stephen Moore contributed an interesting WSJ editorial where he compared/contrasted Obamanomics vs. Reagonmics. On the morn of President Obama’s much anticipated speech to Congress, where he’ll unveil his “jobs” plan, I thought the article offered some good for thought on a potential path forward (disclaimer: I am an independent that voted both left and right during the last election cycle).

As some of you may recall, both Presidents inherited economies on the edge of collapse – high unemployment, low growth (“stagflation” in the case of President Reagan) and poor consumer sentiment. However, that is where the similarities end. Where they differ is in their respective approaches for combating the crises at hand. While I won’t bore you with talk of Keynesian theory (that stuff really makes my head hurt), what I will highlight are the strategies both implemented:

President Reagan: stimulate the “supply side” of the economy via the biggest tax cut in history, deregulation, tight monetary policy (to combat inflation) and spending controls

President Obama: stimulate (primarily) the “demand side” of the economy via a $1T stimulus package which included tax cuts, direct spending on projects and aid to states and additional funds for entitlements (e.g., unemployment and heath insurance subsidies)

While I’m not here to armchair quarterback on the could have, should have, would haves of their approaches, what I will say is I’m eagerly looking forward to President Obama’s speech to understand how much Reagan-esque supply side economic goosing he’ll propose this time around. Therein may lie the path forward to economic growth and job creation.

Analysis: BLS September 2011 Jobs Report

The US unemployment rate held steady at 9.1%; the broader underutilization rate – which includes those who have given up looking for work or are settling for part-time jobs - increased to 16.2% (from 16.1%).

• Zero net jobs were created in August, a figure that is well below consensus estimates (+80k) and will undoubtedly stoke double dip recessionary fears; to pour more salt in the wound, June/July payrolls were significantly revised downward (-58k).
• Approximately 14.0M people remain unemployed; long-term unemployed, those who have been out of work for 6+ months, remained flat at 6.0M (42.9% of all unemployed).
• Involuntary part-time workers rose to 8.8M (vs. 8.4M) further underscoring workers’ difficulty finding full-time work.
• Average hourly earnings decreased to $23.09 reflecting a 1.9% increase on an annual basis; the average workweek decreased to 34.2 hours (-0.1%).

Anemic growth throughout the private sector

• The usual suspects, health care (+30k) and professional & business services (+28k), continue to show noteworthy gains.
• Information (-48k; largely due to the Verizon labor dispute), construction (-5k) and manufacturing (-3k) were among the sectors that contracted in August.
•  The retail sector decreased (-8k); however, clothing and accessories stores continued their modest gains (+4.9k).
• Continued austerity efforts shaved 17k from state and local government payrolls.

What’s in store?  Key watch items…

On the bearish side:

• Global manufacturing.  As a potential precursor of things to come, a US survey of purchasing managers highlights an alarming trend amongst global factories.  Asia’s manufacturing rate contracted (with South Korea, Taiwan and China all slowing) and Europe’s rate decreased for the first time in two years.  The result may precipitate a downward spiral phenomenon whereby emerging economies confront weakness in their advanced economy customer base and the US and other advanced economies realize less growth from the emerging economies that they have become increasingly reliant on to offset weakness domestically.
• Consumer confidence.  The Conference Board’s index of consumer confidence plunged to 44.5 (vs. 59.2 in July), marking the lowest reading since April 2009.  Consumers’ negative sentiment may continue to suppress demand and weigh on the global economic recovery.

On the bullish side (and this is somewhat of a stretch):

• Government/The Fed.  To say these next several weeks/months are critical to the health of the global economy is an understatement.  Given the recent spate of dour news, President Obama, other global leaders, and the central banks will be hard pressed to unveil additional initiatives to stimulate their respective economies.  President Obama is scheduled to present his “jobs” plan on September 8 (rumored to include calls for increased infrastructure spending, continued payroll tax cuts and the rollout of Georgia’s best practice job program).  Separately, the Fed is weighing another round of quantitative easing (QE3) to infuse more cash into the economy (although there is significant doubt about how much this would help address the underlying issues).
• Worker productivity.  Workforce productivity fell more than previously estimated.  This may be a sign that companies have pushed their current workforce to the limit and may need to increase hiring to meet demand.

CBO – a voice of reason – weighs in on the economy

While it’s always fun to listen to prominent economists (e.g., Mankiw, Krugman, Whitney, etc.) prognosticate on the doom and gloom waiting to befall the global economy, you always have to take their insights with a grain of salt.  While this is not meant to slight their expertise in any way (they are far more experienced than I), what I am saying is you should always reserve a modicum of doubt as, at times, their revelations are as much based on shock value as they are in fact.

Thus enters the Congressional Budget Office, or CBO for you aficionados, who I view as a steady voice of reason.  They’re the group that Congress looks to validate or call BS on estimates baked into various budget-related pieces of legislation (e.g., the US’ recent deficit reduction bill).  The CBO recently updated their economic outlook.  Here are the highlights (using the HUGE assumption that Congress gets off of their tookuses – or is it tooki (?)– and does what they said they would recently do…definitely take this with a ton of salt):

Growth.  US GDP is expected to increase by 2.3% in 2011, 2.7% in 2012 and average 3.6% from 2013 – 2016 (also taking into account near term austerity and tax measures).

Deficit.  The US deficit is expected to be $1.3T or roughly 8.5% of US GDP – the third largest shortfall in the past seven decades.  Based on austerity efforts, deficits are expected to fall to 6.2% of GDP in 2012, 3.2% in 2013 and average 1.2% from 2014 – 2021. 

Unemployment.  The unemployment rate is projected to fall from 9.1% in Q211 to 8.5% by year end and remain above 8% until 2014.  Moreover, the rate should decrease to a more comfortable ~5.3% average from 2013 – 2021.

What does this all mean for us HR folks?

While the CBO offers some heartening (and hopeful) news for future generations to come, there are several takeaways for the here and now:

• Count on stagnant growth and high unemployment for the next couple of years (Note:  This jives well with the Federal Reserve’s decision to leave interest rates near zero til mid 2013).  Respectfully question business leaders’ rosy forecasts that only assume “hockey stick” growth projections.
• Sources of deficit reduction – expiring tax cuts and entitlement reductions – will crimp business and consumer spending and also force older workers to remain in the workforce longer.  On the latter point, pay close attention to your Gen X and Gen Y employees who may be waiting in the wings to take on the leadership role currently being occupied by your “Traditionalists” and “Boomers.”  Proactive employee engagement will be critical to maintaining the peace and retaining your key talent.

I’ll be presenting during an upcoming HCI webinar on September 1st

For those of you who may be interested, I’ll be the featured presenter during an upcoming Human Capital Institute webinar loosely titled “A Jersey Biologist in Human Resources’ Court” (catchy title, right?).  During the webinar, I will chronicle the road I took to get to where I am and some of the formative experiences that helped develop my talent analytics foundation (which was the original title…personally, I like mine better – hopefully you concur).  For those looking to enhance your own analytical mindset, I’ll posit some recommendations to help raise your game.  For those searching for talented professionals with an eye for human capital analytics, I’ll provide my take on what to look for and where to look.  It should be some really good, wholesome family fun.

The following link provides additional information:

http://www.hci.org/lib/talent-analytics-foundation

Hope to hear you there!

Fasten Your Seat Belts, Please

Recognize this figure?  It’s Mr. Toad of Mr. Toad’s Wild Ride fame (I know I’m probably dating myself and you are too if you recognize it).  I thought this image provided a reasonable analogy for the rollercoaster ride our global markets have experienced over the last several days.

To put things in perspective, consider the following:

1.  Wild fluctuations in the markets (e.g., for the fifth straight day the Dow shifted by 400+ points from the session high to the day’s low) as investors continue to search for “clarity”

2.  Nearly $1T of net worth has been lost as a result of the wild market swings

3.  Fear is running amok as highlighted by the Volatility Index (VIX - one of my favorite indicators by the way)…as an aside, isn’t really interesting how analysts are able to estimate fear?

To further underscore what is yet to come, we should look no further than the Fed’s decision to maintain interest rates near zero through some time in 2013.

What this means in the short term is anyone’s guess.  However, one thing remains clear.  We are in for another wild ride if:  (1) countries don’t get their fundamentals in order or (2) we experience another shock to the system (e.g., Euro zone debt crisis proliferates beyond the “PIGS” countries, China inflationary pressures), we may be headed for another global recession.  While murmurs of another global recession have been getting louder, we should be mindful this one will be a lot different than the last one (circa 2008).  This article provides a really good synopsis why:

 http://online.wsj.com/article_email/SB10001424053111904140604576496241939456906-lMyQjAxMTAxMDAwOTEwNDkyWj.html?mod=wsj_share_email

Quite interestingly, the factors that are holding us back this time around (e.g., collective lack of faith in governments to remain solvent and spur growth) are also ones that give me hope given the piles of cash many companies are sitting on.  Nonetheless, as HR professionals, it is incumbent on us to mitigate these critical uncertainties now.  Fortunately, there are things that we can do to hedge risk (e.g., scenario planning, strategic workforce planning)…oh yeah, and fasten our seat belts.

Analysis: BLS August 2011 Jobs Report

Reversing a two month upward trend, the US unemployment rate decreased to 9.1% (from 9.2%); the broader underutilization rate decreased to 16.1% (from 16.2%).

§    A net +117k jobs were created in July, surprising economists whose consensus estimates called for a 75k increase; as an added dose of good news, May and June payrolls were revised up by +56k.

§    Approximately 13.9M persons remain unemployed; long-term unemployed, those who have been out of work for 6+ months, remained flat at 6.2M (44.4% of all unemployed).

§    The labor-force participation rate, the share of the US population in the jobs market, decreased to 63.9% (from 64.1%).

§    Average hourly earnings increased 0.4% to $23.13; on an annual basis, this metric has increased 2.3%...barely enough to offset cost of living increases/inflation

Broad-based gains in the private sector

§    Health care (+37k), professional and business services (+34k) and leisure & hospitality (+17k) experienced sizable increases.

§    Manufacturing (+24k; with transportation equipment contributing +14.4k ) bounced back as supply chain disruptions stemming from Japan’s earthquake continue to ease; construction (+8k) also reversed previous losses.

§    The retail sector increased (+26k) with clothing and accessories stores contributing modestly (+3.4k).

§    State and local governments pared 37k from their payrolls; quite alarmingly, since peaking in September 2008, the US’ public sector has contracted by 611k – with ~40% coming from education.

What’s in store?  Key watch items…

While recent events (e.g., US debt reduction, Thursday’s market correction, etc.) have been well chronicled, we should also be wary/hopeful of the following macro factors:

On the bearish side:

§    Are we double dipping?  US GDP in Q2 11 came in at 1.3% with Q1 11 revised downward to 0.4%.  According to the Bureau of Economic Analysis, when growth historically dips below 2%, a recession is already underway (Note:  Since 1970, this was the case in six of the seven instances when this has taken place).

§    Euro Zone.  While the European Central Bank took significant steps to tame the debt crisis contagion by recently purchasing Portuguese and Irish bonds, several risk factors merit focused attention:  unsustainable Italian and Spanish bond yields (which are currently exceeding 6%) and youth unemployment (which is currently exceeding 20.3% for 15-24 year olds according to Eurostat).

On the bullish side:

§    US Business Investment.  During the first half of 2011, business investment in new equipment and software increased 7.2%.  According to the Federal Reserve, nonfinancial companies held $1.91T in cash and other liquid assets – the highest level since the early 1960s.  Increased investment may come as the economic recovery picks up steam in the second half (as the Fed still believes).

§    Japan.  Based on the Bank of Japan’s recent assessment, their economy rose at a record pace in June – signaling a broadening recovery from the March earthquake.  Japan’s index of leading indicators (a future-focused metric) increased 3.8% while their index of coincident indicators (a current state metric) increased 2.5%.  Japan’s recovery bodes well for industries whose supply chains were disrupted.

Hello and Welcome to Forces@Work!

Hello and welcome to “Forces @ Work” – my online journal for opining on the prominent macro-level factors impacting the world of work.  Before I start channeling my “inner Ben Bernanke” (disclaimer:  I know I’m nowhere near his rarified air – just go me with me here), I thought it would make sense to explain my background and how it drove me to create this blog.

By luck or coincidence (I’m still trying to figure this one out), I am a HR Strategy professional charged with the privilege of thinking about and addressing the future…a responsibility I don’t take lightly.  However, by education, I am a molecular biologist.  Totally straightforward career path, right?  I only mention this because my roots in science compel me to incessantly tease the black and white out of a vocation that can be very gray and abstract (no offense to my fellow HR colleagues).  One way I endeavor to do this is by analyzing how macro forces (e.g., economic, demographic, sociopolitical, etc.) affect how we work, who we hire and what we’ll need to do to evolve. 

My hope is that you find my ruminations insightful, humorous and expeditious (i.e., you don’t have to read the Wall Street Journal end-to-end to understand what’s going on).  Enjoy!