Sep 24, 2012

Why Businesses Won't Hire

 This is a re-post from yesterday, but includes the charts referenced.  Sorry and have a great day. 

 In between all of the President’s cannon fodder that keeps arriving each month when the employment report arrives, job growth has been weak.  When I speak to employers I hear two major complaints.  The first is that they can’t find qualified workers to fill their open spots.  This is an indictment on both our immigration and education systems.  If we aren’t educating our children properly to fill these spots, then we should allow qualified, educated immigrants to enter this country on work visas.  In California, we once had a community college system that was the envy of the nation.  A system of low priced educational institutions that offered students an opportunity to study in a specific area and then leave, with an AA, to obtain a job in the field as a qualified entry level employee.  Unfortunately the politicians have spent the past 30 years re-crafting the curriculum at these community colleges to mirror the general education requirements at the state universities.  This curriculum is now heavy on liberal arts, light on practical studies.  The end result?  Job openings that can’t be filled because an AA degree now leaves you under-qualified for most of today’s job openings.

The second complaint I hear from employers is the uncertainty being created in both Washington and, for California based businesses, Sacramento.  Politicians plan around the election and budget cycle.  Elections every two or four years, budgets every year.  The political budgeting process doesn’t require any forethought, and in the case of DC hasn’t even resulted in a budget for the past three years. The lack of business acumen amongst politicians, and especially the group occupying the White House today, creates a level of uncertainty for businesses that dissuades them from planning capital expenditures and future hiring.  Most businesses I know create hiring and capital plans at least three years in advance.  Of course they will alter them as circumstances arise, but in general that three year plan is standard.  By not passing budgets and leaving tax uncertainty to the last minute, governments leave businesses unable to plan, in which case capital budgeting and hiring just don’t occur.  The current group in DC doesn’t understand this.  They will run this tax uncertainty right into next year, make some changes in February that are retroactive to the beginning of the year, claim they “fixed” the problem, and then sit around in amazement when companies don’t respond by immediately hiring and spending. 
With Mr. Obama clearly ahead in the swing states, get ready for more of the same for the next half decade and beyond.  While I find many issues with Mr. Romney, I can’t fault his business sense and wish that Mr. Obama would bring in a cabinet in which at least 50% has held a private sector job.  Unfortunately, given Mr. Obama’s arrogance and self-righteousness, my guess is that he will view a victory in November as a mandate for more of the same as opposed to what it really is-Mr. Romney’s inability to formulate a coherent campaign message.
Apple (AAPL) launched their highly anticipated iPhone 5 to a rousing reception.  The phone is already sold out after selling 5 million units in three days.  Now there are concerns about shortages, which should soon pass.  Additionally, the company announced 22 million downloads of the new IOS 6.  I downloaded it on one of my iPads and, while basically there were no noticeable changes, there were a few items I have been disappointed with.  First, the attack by AAPL on Google (GOOG) is annoying.  AAPL substituted the GOOG Maps app for their own, which at this point is an inferior product.  Additionally, my YouTube (owned by GOOG) app disappeared, and I have been unable to find it in the App Store.  It’s OK to have a feud with a competitor, but don’t do it at the expense of your customers.  Maps and YouTube are two of the most popular apps on the iPhone and iPad, and changing/eliminating those without suitable replacements doesn’t benefit users. 
The economy in China continues to soften as foreign investment and domestic demand continue to wane.  Some growth forecasts are in the 6% range for the country, just over ½ of the average over the past decade.  I’ve discussed in the past that these numbers are likely overstated.  Given the long decline in the Shanghai, I am starting to sniff around some of the Chinese names for values. 
Argentina announced that GDP declined 0.8% from the first quarter to the second quarter, which was flat with Q211. 
I know this is old news now, but we haven’t discussed QE3 (since I was on my political/media rant last week). The Fed announced plans to extend their securities buying by an additional $40 billion per month, with no cap on what they’ll spend and no end date.  In other words, we just joined the Europeans in perpetual QE.  If you have been a reader for a long time you’ll know that we have been predicting that the Fed’s first interventions were just softening us up for their eventual plan for permanent QE.  Remember, for a man with a hammer, every problem looks like a nail. 
The two charts below, courtesy of my friend Bob Rezaee, show the how the tax burden is distributed in the US.  The first chart shows the share of tax liabilities by income quintile, comparing the top 20% of earners to the bottom 40%.  I realize it doesn’t show the mix of earnings (the bottom chart addresses that), but the top 20% is paying nearly 90% of all taxes while the bottom 40% not only doesn’t pay any taxes, they in fact are receiving money.  Part of this is certainly due to the recession and the fact that we have added more individuals to the disability and welfare rolls over the past three years than we have added new jobs.

This second chart shows the share of income earned by the bottom 20% of earners in 1979 and 2007, at the cusp of the recession.  It shows that the bottom 20% earned 1.4% less of national income in 2007 versus 1979.  While certainly not a positive trend, it is a far cry from the way this trend is portrayed in the mainstream media.  Note also that this group’s share of income tax liabilities has declined from 0% to receiving a benefit of 3%.

The college football season is in full swing.  There have been some great upsets and games so far.  I’m not sure I’ve ever seen a team fall from the rankings as fast as Arkansas.  I’m even throwing some kudos to Notre Dame, which for the first time in 15 years actually has a credible schedule. 
Have a great day
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