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July 22, 2010

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One of the benefits of being in the Executive Search business is that we have nearly instant sensors that tell us what the jobs market is doing and where it is doing it. These sensors are interviews. Interviews respond almost exclusively to manager confidence. And, manager confidence responds to consumer confidence, uncertainty and economic conditions. Let me hold there for a minute and go back.
Somewhere in 2005 time period the housing market began to falter as it does historically every 7-10 years or so. Americans have always used their house as their tool to save for retirement. While the rest of the world tended to save in currency, stocks or gold the US consumer used his house as the vehicle that preserved his capital in the form of equity. Buy a house, pay the mortgage off over 30 years, watch the value grow 5% or so a year over that period, take advantage of the one time capital gains tax free sale and bingo a retirement nest egg. That was the way it worked. Add it to social security, IRA's or 401K's or military/government retirement pay, or an actual retirement plan from the Fortune 500 companies and you were set for life until death. That was the plan for a generation of baby boomers whose spending habits created 40 years of economic booms in the USA. Beginning in 2008 in the middle of a faltering housing market the baby boomers began to reach retirement age. Retirement age brings with it a desire to sell the big property and harvest the value as we downsize to Arizona, Nevada,Florida, or St George, Utah. It was predicted by some economists that 2008 and would be the beginning of a downward spiral of the housing market as high valued homes went on the market. It may also be true that many baby boomers in anticipation of their retirement had already bought the second home in Nevada, Arizona, Florida, etc. Unfortunately, when baby boomers put their houses up for sale it was in the early stages of a recession and the markets for people upgrading was soft. Thus, lower prices for sales and no offers for many. The builders with inventory under construction in Arizona, Florida and Nevada were now faced with no demand. The recession then put huge pressure on the housing markets in the form of foreclosures. Housing prices dropped. Developers stopped building. Workers were laid off. And, the spiral continued. Baby boomers postponed retirement. Job openings that they would have created did not come on line. And, the construction trade along with the thousands of associated businesses laid off workers. More people could not make their payments. Foreclosures rose. Banks were threatened. The basis for American life: the American dream had vanished for millions. Consumer confidence was in the tank. The White Picket fence and the Gold watch were vanishing.
So, the blame game began and the politicians began to look for reasons why American life seemed so threatened. First we changed Congress and gave power back to the Democrats in 2006. Then as things got worse we changed Executives and gave the liberals a chance with President Obama. Why were we changing things? Because the conditions were still getting worse. So, consumer and manager confidence stayed low. And, with the rise of the liberals we saw dramatic change in the progressive approach to solving the nation's problems. These dramitic programs and legislation further heated the debate about how to fix it. And, consumer and manager confidence stayed low. Without confidence we will not get private sector jobs created.
From time to time during this past 18 months there has been a rise in both consumer and manager confidence. These have been in between the major legislative debates. However, it appears that as soon as one debate is over another begins. TARP, Stimulus, Heathcare, financial reform, immigration, Cap and Trade, etc. As some of you know I am friends with Senator Reid. I have spent some time trying to convince him to slow down the progressive change agenda to let the economy heal. To little avail. Politics is about getting votes. And, the liberals have their moment in power and the far left is not satisfied yet with the programs of Obama, Reid and Pelosi. So they continue their demand for more progressive programs. And, these programs create uncertainty in Americans and managers. The econmy can recover now if left alone.
Our sensors of interviews took a modest jump 4 months ago. Unfortunately the sectors in which we bagan to see interest were in companies who sell directly to the Federal Government. The money being thrown at the economy is not going to private entrprise. It is not coming to small businesses in the form of capital or loans. It is going to Federal employment and programs. Will it eventually flow to the private sector? Perhaps. But, not quickly. Now we are seeing a rise in interviewing for companies in the healthcare field and the energy companies.
Business owners are as Bill says, hunkered down. They have taken provisions to survive and they see a world of uncertainty ahead: the elections, the commercial real estate market, immigration reform, personal and business tax increases, energy tax increases and the imposition of healthcare legislation over 3 years.
How soon will they begin to unleash their pent up desire to expand and grow? When they are confident that they can predict the future and see some rewards for taking risk once again. If the 8 million small business owners see opportunity to better their lives through growth then they will hire. And when they do they will hire millions of Americans once again. And, America will be back to work. Real estate will be sold. Taxes will be paid. But, keep up this turmoil for change and it could be a long time coming. But, it will come. The baby boomers will retire and there are millions of them. Many of those jobs will be filled by our grand children. And many will be lost to technology improvements. Hopefully, our sensors will continue to rise and recovery will come.
For those liberals among you thanks for the comments. It is fun to exchange views and certainly informative. Hopefully, my lack of perfect English is not turning you off. I was recently declared a right wing radical by one reader. I always thought I was a moderate Republican. Only in America :)

Entraprenuers comment will have to wait a day or two. Today: the lessons of waiting for sanctions to work against the Nuclear bound dictators. Here we are a nothing country with a nothing dictator. One we have been dithering with since 1952. Now, we are faced with the classic showdown nuclear poker hand: a threat of nuclear attack if we conduct a military exercise. Back down and what will be the next demand ? Surrender South Korea? Proceed and perhaps Soul will be gone next week. This is exactly why this situation should have ended long ago. And more so why the Iranian situation must be addressed with strength. It will be very interesting to see how we play this hand.

A+ Bo. Comment tomorrow. Bill

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