THE MARKETS WERE RECENTLY JOLTED by the largest increase in unemployment since 1986. The rate increased to 5.5 percent in May a half point monthly increase. Analysts say the jobs picture is grim and with equities having officially entered bear market terrain, prospects of a much longer period of economic hard times are starting to emerge.
While the number was a surprise to most, the questions now before us are how long will the job picture be bleak and when will an upturn begin? As it happens strong clues to the answers to both questions can be found in Chief Executive‘s CEO Index. Long-term readers of the index are well aware that CEOs have had negative hiring plans for months. In fact, the Index has been accurately indicating a decrease in employment since the Fall of 2007. The analysis shows that the CEO Employment Index, one of several component elements of the CEO Index, leads the job numbers typically by six months (i.e., when CEOs change their attitudes to hiring the employment numbers adjust with a six month lag). Only 18 percent of CEOs say they were hiring last Fall and at the turn of the year. This number and their general pessimistic outlook of the economy were surefire indicators that employment would get weaker. It has. And it will continue for a while.
Our Index suggests that companies will not be going on a hiring spree any time soon. Only 11 percent of CEOs expect to be hiring now and this is expected to yield weak numbers for at least the balance of 2008. Jobs will not be created until CEOs feel confident enough to start hiring. Almost 45 percent of CEOs expect to decrease employment which suggests that we will see more layoffs to come. The chart below suggests we could see unemployment of 6 percent to 6.5 percent by year end.It will also mean that our consumer based economy will struggle longer as the engine of jobs and growth will be slow. It will also mean that through this current election period job numbers will stay weak which tends to help the party out of power. Democrats will ride this issue hard. The calls by politicians to help drive job growth will increase even though polls don’t create jobs, businesses do. Watch the attitude of CEOs going forward; it will tell you when they are ready to hire again. Check out Chief Executive‘s CEO Index at www.chiefexecutive.net/ceoindex to monitor it for yourself. When CEO attitudes toward hiring improve, watch for employment numbers to jump six months later.