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The Job Market Forecast for 2010 from Jeff Altman, The Big Game Hunter

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By now you have heard the reports about how the jobs report showed far fewer job losses than we’ve had in two years–only 11,000 jobs lost. In a few weeks, the revisions will show that we probably gained jobs last month.

“Happy days,” reports the financial and news media.

“The jobless recovery is almost over,” others chime.

Let me burst the euphoria for a moment.

The good news as I have been telling you for a while is that an increase in consulting utilization is the second sign of a jobs recovery (the first signal is that a trickle of “jobs requiring odd skills” appears.

Phase 1 started in March, 2009; phase 2 began in June, 2009. These were all easy to anticipate because the crisis occurred during a budget cycle with panic in full regalia. Too many jobs were cut and management forgot that people taken vacations.

In March, 2009, Joe and Joan who worked on the odd/old technology were let go and suddenly missed and needed to be replaced.

During June, the reality of vacation schedules started to occur and temporary workers started to be higher. This shows up in the government data.

As budgets were constructed this summer, in the midst of more economic crises, the healthcare bill being endlessly argued and debated, and a few other things, few managers at large companies had the stomach to request increases to staff in their 2010 budgets.

Instead, consultants have been slipped in to deal with the added workload and to give the impression to the Board and to shareholders that management is being tough on headcount.

As we approached the end of the year, firms needed to spend the saved money in their 2009 budgets to get to their 2010 spends. Hence even more consulting and temporary jobs are showing up in the jobs numbers.

Remember, I have been telling those of you who were out of work to look for consulting assignments?

Many of the contracts we are righting now allows a firm to convert the consultant to staff for a nominal fee. Jeff Joerres, The President of Manpower on CNBC last week spoke about the same phenomena–consultants who were already on site being converted to staff.

We’ll get there eventually because that is how jobs recoveries progress. You see this time, unlike last time, we have a major added phenomena– an activist government that hasn’t made the changes in the rules yet so business has no idea how to forecast.

I’ll use myself as an example.

My family health insurance currently costs about $11000 per year. When the new bill passes, the firm I’m associated with with its 50 people will have higher insurance costs, right? But how much higher?

Estimates have been between $4000 and $7500 higher if we keep the same coverage (based upon a variety of sources. I am not debating healthcare here so please don’t email me about it).

So if our small firm pays for half the increases, it will cost between $100,000 and $187,500 more to provide coverage to our existing staff. And management doesn’t know that’s a big increase!

And state and local taxes will increase to cover new unfunded Medicare mandates the states have to pay. More taxes. Get where I’m going?

A firm with 5000 workers potentially can have increases of $1,000,000 – $1,875,000.

It is not necessarily the increases that are a job killer. It is the uncertainty that kills jobs because no one can plan or budget yet.

In Allentown and at the jobs conference last week, The President said, in effect, that our federal credit cards were maxed out and that business was going to have to create jobs, not the government.

DUH!

Of course that is what needs to happen but,

As a result, firms are going to continue with consultants until they know with certainty what their new cost structure will be and probably unto the summer.

In the mean time, white collar hiring will continue to improve and temporary workers in manufacturing and other sectors will increase, too (devaluing the dollar as the Administration has done makes the necessity of sending manufacturing jobs to China less desirable.

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We are almost at the end of 2009, just over one year since the world financial markets and took jobs with them throughout the world.

In the USA in July, 2008, unemployment stood at 5.7%. Today, we are almost double that rate at 10.2%.

A large amount of that can be attributed to the collapse of the credit markets, the fear instilled in people, job loss . . . you know, everything that we read about every day in almost every story that covers the job market and employment.

What is fascinating is how little has been covered about the failure of the stimulus bill to actually stimulate the US economy.

The administration is correct in pointing out that the bill saved jobs– the jobs it saved though were government jobs at the state and local levels. State governments were permitted to take half the money they received and apply it to current operating expenses to help reduce the impact of lost tax revenues.

This was enormously helpful to large spending states like California, New York and Massachusetts in helping reduce government programs (and by extension) and employee cuts. Invariably, the first workers cut are teachers (I thought their union was more powerful than that. Next come hospitals. All the cuts designed to scare taxpayers before the states get serious and cut bureaucrats.

The problem I forecast early this year has come to pass–most of the stimulus money was back-ended. By that I mean, no more than 20% of the money has been spent so far so instead of stimulating is has been preserving a status quo.

And not a good one at that.

So the real stimulus money is going to be spent beginning next year and things will start improving next year! Hurray!

Unfortunately, business hates change and among the many changes this administration has focused on is healthcare reform and “cap and trade.” I am not saying these are bad things (although I think what is working its way through the system is in both cases for reasons it is unnecessary for me to explain), it is just that business has no idea how to plan for the additional costs that will come with these changes.

We have listened to so many different proposals for healthcare legislation for the past year . . . public option, no public option, insurance exchanges, tax credits, the Baucus bill . . . on and on. What business knows is that the cost of hiring a worker is about to increase significantly in order to increase coverage for those who do not currently have insurance.

Why would any significant hiring go on until business knows what the costs will be? How does business bid a contract to perform a service until it knows what its labor costs will truly be?

Again, I am not debating merits. I am pointing out unintended consequences of our one year long debate over healthcare during the midst of an economic crisis.

And crisis it is.

The unemployment rate is only part of the story. To re-absorb all the workers who have lost jobs PLUS take on all the students who will be graduating universities and want to enter the system is going to take years (send your graduates back for a Masters).

Plus wages and real wages (inflation adjusted/ currency depreciated purchasing power) is collapsing and won’t end any time soon. As I said to a friend recently, salary levels in IT haven’t changed in the last 10 years . . . and it has nothing to do with outsourcing (that will have to wait for another time).

What do we have to look forward to?

To use that memorable quote (at lest to me) in “Rocky III,”

Interviewer: “What’s your prediction for the fight?”
“Clubber Lang: My prediction?
Interviewer: Yes, your prediction.
[Clubber looks into camera]
Clubber Lang: Pain!

Although there are one or two modest signs of recovery (white collar hiring has improved and temporary labor has shown a modest increase), budgets were being formulated during the summer and approved (for calendar year corporations) during October to go into effect in January. How optimistic do you think people were during the summer?

Add the weight of potential change is hanging over the US economic system that will continue to inhibit job creation until resolved and we have a mediocre year ahead of us in 2010.

And people are getting hired and some strategies are working. I teach those strategies in my VIP program.

© 2009 all rights reserved

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Now, I’m a “boots on the ground” guy who writes from the perspective of observations and comments from people. Among the things I have noticed are:

1) Unlike last year when there was no interviewing occurring, interviewing is now commonplace.

2) People are receiving job offers, although they are not financially rewarding offers. Unlike the early signals when offers were only being extended for people with obscure skills, now “common skills” have come back in to demand.

3. People are starting to receive multiple job offers (That was a real shocker)

4. There is a push on among employers for “try buy” or contract to hire job offers in order to mitigate their risk, particularly with job applicants who are not working.

It will take time for all the unemployed to be re-absorbed by the system. Until then, wages will remain compacted around certain price points.

© 2009, Jeff Altman, The Big Game Hunter all rights reserved

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