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.