What I believe in is a firm economic foundation. Something a country, a nation, can build the next level on. There are traditional Economic fundamentals that need adhering to for this to occur. Looking to our current crisis we can see what we did 30 years ago is impacting today. This means we need to be mindful of what we do today because it will be impacting on our economies in 30 years time. The first example is of borrowing from our children.We are sitting in one of history's worst economic crises and few people have not been affected with most people heavily affected. Economic cycles occur and are part and parcel of economies, but these chronic recessions are from system failures, deviating from the fundamentals.The US of A is the world's leading economy. What it does affects the rest of the world who continually keep an eye on it's situation if they want to get ahead. Needless to say much of the world can and have independently gone to pot on their own.



Friday, September 3, 2010

Employment levels and the Science of Rocketry

Yahoo Finance has an article on the issue of the anticipated unemployment figures set to rise marginally amongst sluggish hiring.


Arguments as to why, when companies are becoming stronger, the hiring is not increasing are presented with various theories.

Sidestepping intellectual theory let us walk in the shoes of the owner/manager of a small to medium business. In other words, from the perspective of some of the guys doing the hiring.

During a slump much energy is diverted to reducing debt exposure. This includes paying off debt, laying off non essential labour and improving the productivity of those who remain. In addition capex is reduced to essential asset replacement creating the scenario of many companies consuming their wealth. What gets these companies moving is better sales. Better put would be better confidence in sales. So whilst many companies have had improving sales they are still in a survival mindset. They will first try to meet production with what they have and only spend on assets and labour that are deemed necessary for those sales. The marginal cost of getting labour to work overtime is less than the marginal cost of hiring and firing.

When the sales are consistently up and firm then will the capex be extended and further labour hired.

What we see is that the economy is still in the toilet and there is no real optimism so long as there remains central interference. Although some companies are improving tax rate hikes are likely and there is still a risk of sales collapsing.

Until companies are able to see where they are and are not likely be hiring then firing they will stick with a reduced labour force and reduced liability.
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