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It’s Still a Jobless Recovery

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By Gary D. Burnison

March saw a U.S. job increase of 88,000 workers, according to The Bureau of Labor Statistics.

That's despite the DOW Industrial Average just posting its best first quarter since 1998, up 11.25 percent. Plus, according to the graph below from the U.S. Department of Commerce, housing starts are on the rise.

Job growth is still anemic.

The reason? CEOs are still gun shy to hire because consumer demand is still low, and there is no clarity on the future – yet.

So, here is our current reality:

1. Global public debt exceeds $50 trillion, up from about $40 trillion in 2010.

2. Cities have gone bankrupt: Examples include San Bernardino, Mammoth Lakes and Stockton, all in California; Harrisburg, Pennsylvania; Jefferson County, Alabama; and Central Falls, Rhode Island. Cities are just a microcosm, as many sovereign nations have balance sheets that are overleveraged as well.

3. Sovereign governments are facing financial crisis. France for example, has a public debt as a percent of GDP of 92.5%. To save itself, the country is considering a 75% tax on high earners. And, Greece and now Cypress have been centers of the euro debt crisis.

4. Too many promises have been made to citizens that can’t be kept. In the case of cities, if concessions between cities and current/retired workers can’t be made, bankruptcy forces a dictated deal to be made by a judge. In the case of companies, union deals need to be renegotiated and pension and retirement agreements reworked.

5. CEOs I have interviewed concur that robust hiring is not coming back within the next 4 years -- at least. This is despite being past the fiscal cliff, the sequester, the market rally, and the improvement in housing values.

6. We have simply spent too much for too long. Because we have borrowed trillions of dollars from ourselves to repay our debt, the maturity date must be extended – or we face big losses. Big losses are not an option; it could mean a financial collapse.

So, one thing is certain in today’s reality: uncertainty.

The question is, how are CEOs and political leaders facing the new reality?

First CEOs: The CEOs I have met with are operating accordingly. In fact, the critical starting point of great leadership is to accurately and realistically assess the present. From the starting point of reality, he or she can navigate the current environment, and anticipate the future.

CEOs are navigating the present by holding cash, and holding back on hiring.

Holding cash has been real. At the end of 2011, according to Moody’s, American companies were sitting on nearly $1.24 trillion in cash. Holding back on hiring is evident in the March BLS numbers – 88,000 jobs.

While they may have started to loosen the reins on cash (it has been reported that data from the Association for Financial Professionals shows that 28% of finance executives anticipate cutting their cash in the first quarter versus the 23% planning to add to them), the money is not going into hiring. Some are spending it on acquisitions (this often spurs elimination of duplicate jobs), while others are using it to pay down debt, buy back shares, and issue dividends.

In addition, literally every CEO I meet with is reluctant to hire. As just one example, a large multi-national manufacturing CEO said: “We have the money to hire for the future – what one might consider investment hiring, but we are unclear when and how it will pay off. So, we are waiting.” In other words: no market predictability.

The new normal has become, “Money to hire, not convinced hiring is a good investment.”

We have often said that companies want return on capital. When that capital investment is in people, companies want return on talent. This means that the people that can show why they are a good investment for a company will and do get hired.

CEOs have essentially three levers to pull to drive their companies forward: sell into growing markets, create efficiencies, or innovate new products and services that create a new demand.

To expand the global economic pie, it is most important that the global economy create a way forward to grow new markets for consumerism. We need to develop the undeveloped parts of the world to drive jobs and economic growth.

Today there are seven billion people on earth with $46 trillion in debt (that's more than $6,500 of debt per person). We also have many parts of the world in Africa and Asia that are undeveloped. If we invest to expand the pie, and expand consumerism, we will grow. But, not within four years.

CEOs are investing right now in jobs and technology where there is a payback. As companies do hire, it is discretionary – and it is the highest level of selectivity we have ever seen. Companies will still pay handsomely to land the teams that can make the difference between growth and stagnation. But, company CEOs are not going to hire in geographic markets without some level of certainty.

A key to paying ourselves back is investing in the right industries that can develop economies and grow jobs. However, we have never had global debt at this level. So, expanding the global economic engine means an extended period of readjustment. This time, we cannot use the same methods we have deployed in the past few decades to restart the economy – we won’t solve 2013 issues with 1985 solutions. With a connected global economy the world is smaller, so our solutions need to be bigger.

Looking back at how we got here is not as relevant as admitting the new reality we face. Assessing our real starting point is the first step to growing the global economy. But, it is better to not count chickens before they hatch. That is what CEOs are doing and this may be the new reality.

Gary D. Burnison is CEO and board member of talent management firm, Korn/Ferry International. He is a New York Times best-selling author of No Fear of Failure and the most recent bestseller, The Twelve Absolutes of Leadership.