Lingering Anxiety, Regulatory Fears, Better Productivity: Why Businesses Aren't Hiring


An interesting piece in yesterday's New York Post notes that "net profit margins for private companies in the 12 months ended in April were up some 6.5 percent, compared with the 4 percent that was chalked up three years ago."

The source for that data is the analytic firm Sageworks, which tracks the fortunes and failures of the privately held companies that make up the vast majority of businesses in the United States (only around 6,200 out of 27 million business establishments in America are publicly traded). Sageworks says that sales are up along with profits. In fact, in 2011, the firm says private company sales increased over 8 percent and the same is holding true so far in 2012. Which is pretty damn good, especially coming on the heels of rotten years where sales declined.

And yet, firms aren't hiring as expected, even after almost three years of economic growth. Sageworks interviewed 450 "financial professionals" in April and May and here's the breakdown of why they say companies are not hiring:

Though private-sector hiring, like public-sector hiring, is increasing, Pace University economics professor Joseph Salerno told the Post that most businessess are going to sit tight through the election:

He says there is "a pervasive regime uncertainty" affecting the economy. Employers don't know what new rules, laws or taxes will come next year, after the presidential and congressional elections.

I couldn't find the methodology of or questions asked in Sageworks survey, but the general results ring true, don't they? I assume regulations are always in the back of employers' minds, but between Obamacare, Dodd-Frank, and who knows what else, those worries must be amped up. Even with the Supreme Court signing off on the broccoli tax, businesses can't really figure out what they'll be paying in fines, fees, or penalties come 2014 and beyond. And that's assuming that the GOP doesn't gain enough power to scuttle all or part of the plan. Anxiety about the past recession and concerns over the near-future speak for themselves too. Are workers getting more productive? All signs point to yes, or, same thing, companies realized that they were either trying to do too many things of marginal value or were carrying a lot of marginal workers. It always takes a while for companies to start rehiring after a recession or downturn. Given the intensity of the downturn, the vagueness of the regulatory and economic future, and continuing gains in machine-driven productivity (computers, damn computers, in everything), I suspect any return to normalcy is going to take a very long time.

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  1. And this:
    “WASHINGTON (AP) — U.S. manufacturing shrank in June for the first time in nearly three years, a troubling sign as evidence builds that economic growth is slowing.”…..2-11-11-45

  2. Two huge uncertainties: regulatory changes (especially Obamacare) and Europe.

    1. What’s uncertain about Europe?

      The sham’s over, it’s just a matter of time.

      1. The timing, however, is uncertain. As is how much damage the flailing to save the sham will do.

  3. 78% of the reasons were uncertainty of one form or another. Adding to that uncertainty with plans to spend more, tax more, regulate more is probably not a good thing to do.

    Oh yeah: fat cats! Because no conversation on economics is complete without that pearl of wisdom.

    1. You also have to look beyond the U.S. economy. Europe is in a downward spiral and China’s bubble is starting to burst. It’s difficult to predict what effect that will have on the U.S., or when.

  4. Sales are up 8% per year, yet profits are up 4% and 6.5%?

    That doesn’t say good things about costs. That looks, in fact, a lot like margin compression, which is what you get when you have inflationary pressures on your inputs, but demand is too weak to pass those pressures through.

    1. I think there’s an economy of scale argument to be made here; it’s easy to produce more of the same shit, which allows you to sell each unit at a lower profit per unit.

      8% is a huge sales increase, but 6.5% is a very acceptable profit increase.

      1. I thought economies of scale worked the other way: that as your volume went up, your profit per marginal unit should go up as well, since your fixed costs are being spread over more units.

        Example: I have fixed costs of $1,000, and marginal costs of $10 per unit. Last year, I sold 200 units at $20/apiece, for gross revenues of $4,000 and a profit of $1,000, or $5/unit.

        This year, I sold 300 units at $20/apiece, for gross revenues of $6,000 and a profit of $2,000, or $6.67/unit. My sales went up 50%, but my profit went up 100%.

        The only way my margin goes down as volume goes up is if my costs go way up.

        1. Right, but your assuming the market will bear the added supply of the 300 units without a price decrease. Typically this is not the case; as you produce more of a product you’re willing to sell it cheaper as each unit is less valuable to you, which increases your sales volume. You get less cash per unit but make up for it with increased sales.

          1. Good point.

            Still points to weakness in demand, though.

            1. Well yeah, I was just making the argument that 6.5% profit increase isn’t a terrible return for the added sales. It does point out how lackluster demand is at 4% though.

          2. But what should be happening, in RC’s example, is that the 2nd year, they are sold for $19/apiece, for gross revenues of $5700 and a profit of $1700, or $5.67/unit.

            Revenue per unit has gone down, but profit per unit has gone up.

      2. Also, to increase sales 8%, employees will have to work longer/etc, increasing tax liabilities which eat into profits.

        I’d be worried if I had an 8% sales increase with only a 4% profit increase.

  5. yet, firms aren’t hiring as expected

    This was completely unexpected. Experts did not expect this. Unexpectedly, things did not improve as projected. The expected did not occur.

    “The experts” – I am disappoint. But not surprised.

  6. Clearly, every business in America is racist and wants to get the black man out of the White House.

  7. Let me be clear… You don’t have to use a real-life person bank teller, but if you continue to use an ATM, you will be assessed a “tax.” -BHO

  8. Leftist retort: (in the key of C#)

    Nu-uh, the corperashones are big fat meany heads, that’s why!

  9. Sometimes you just hve to jump up and shout, Whos your Daddy!

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