For last several months most of the employers are learning to do more with fewer resources and are becoming more cost conscious than ever before. Both Top-line and bottom-line are growing for smart companies. This is evident when we analyze recent earnings of couple of S&P 500 companies.
Current Economic Indicators (source: http://forecasts.org/gdp.htm)
November 06, 2009
Indicator Value
Inflation % -1.32
GDP Growth % 3.49
Unemployment % 10.20
My argument is even though there is significant decrease in non-farm payroll for past several quarters (refer the table below), we are seeing a modest growth in the GDP for last quarter (~3.5%) and also in the first two quarters of 2009, we definitely saw a sign of improvement (-6.4% in Q1, -0.7 in Q2), which indicates that the economy is growing slowly, while people are losing jobs. Looking at the following table, it is evident that the economy is constantly losing jobs for more than last two years, starting December 2007 - when the recession started (how can I forget this, I graduated this month!)
So, to me, it clearly indicates that both employers and employees are becoming more productive. Companies across United Sates are getting rid of unproductive/inefficient/low skilled employees and utilizing highly skilled/most efficient employees to generate high quality, cost effective and competitive products to retain their competitive advantages and are showing modest growth midst one of the most dreadful economic environment. It’s a clear sign of survival of the fittest! There is no place for non-performers. It’s a fact that we always innovate during the most difficult times of our life. So, I will not be surprised, we will see some wonderful inventions (like invention of telephone/television/electric bulb –which results from basic R&D in a garage or in university lab/company R&D center) will happen in the coming 5 years while we all try to revive the current socio-economic environment.
So when I look at all these data and macro-economic trends, I believe two things will happen in the coming quarters:
1. Workers/Companies will continue to adapt to this challenging economic environment and will learn to do more with less (The average work week held at a record low of 33 hours in Oct '09, while average weekly earnings rose to $617.76 from $616.11 a month earlier. Workers’ average hourly earnings were 2.4% higher than October 2008, the smallest gain since '04 - source bloomberg.com). So, workers will upscale their skill sets and be more productive/competitive to survive. Recently unemployed workers will cross train in new skills(there will be a huge increase in community college/University enrollment)to be re-deployed in the job market. Low skills jobs will continue to get outsourced to low cost region of the country/world
2. In an attenmpt to create the 7.3 million jobs to get back to the 2007 state of 5% unemployment rate - Government/Companies will spend a decent portion of their R&D budget in basic R&D .
Just to give a prospective on how long it will take for us to recover (going back to December 2007 level of 5% unemployment) - we need to add these 7,300,000 jobs back to the economy (starting next quarter, is it possible?), assuming rate of population growth is nearly 0%:
a. if we are looking at a 3 year recovery then we have to add 202,777 per month
b. if we are looking at a 5 year recovery then we have to add 121,666 per month