–Firms Waiting For More Sustained Sales Growth Before More Hiring

By Brai Odion-Esene

(MNI) – When asked if they have any plans to add to their payrolls
in the near-term, most firms have responded in the negative, kept out of
the labor market by their expectation of a sluggish economic recovery as
well as issues such as health care costs and future tax policy, Atlanta
Federal Reserve President Dennis Lockhart said Thursday evening.

In prepared remarks to end the Atlanta Fed’s Conference on
Employment and The Business Cycle, Lockhart laid out what he has
gathered from conversations with business contacts at regional as well
as national firms on conditions in the economy, especially with regards
to obstacles to hiring, job skill issues, and possible longer-term
employer-employee trends.

“To start, we’ve been asking what you might call a fundamental
question of interest to policymakers and, that is, ‘Are you hiring, or
do you plan to be hiring in the near future?’ We are mostly getting
‘no’s’ to that question,” he said.

Why? Few business contacts in the Atlanta Fed’s region expect sales
to improve significantly in the near-term, he said, adding, “Most firms
indicate that their outlook is one of slow and somewhat uneven
improvement in the economy.”

Lockhart added that the majority of business contacts say that they
have capacity to cover near-term sales growth with existing workers. The
majority, he said, also note that should sales outperform their
forecast, they would first increase hours of their existing workforce,
and many state they would then bring in part-time help or hire temporary
workers.

On balance, Lockhart predicted that a return to a pre-recession
configuration of a firm’s labor force “appears unlikely.”

“Even firms that have experienced stronger sales seem to be
approaching hiring very cautiously,” the Fed official noted. “Most say
that uncertainty about future revenue growth is driving this caution,
and they are not likely to increase payrolls until the sales growth
appears more sustained.”

But impediments to increasing payrolls are not limited to just slow
and uncertain revenue growth, Lockhart said, and include — among other
factors — the lack of clarity about the cost implications of the recent
health care legislation.

“We’ve frequently heard strong comments to the effect of ‘my
company won’t hire a single additional worker until we know what health
insurance costs are going to be,'” he said.

Other uncertainties inhibiting business planning revolve around the
longer-term fiscal policy at the federal level, the fate of the Bush tax
cuts, and the effect of various regulatory proposals.

While acknowledging that it is difficult to disentangle these
concerns from mere frustration about weak demand, Lockhart said
nevertheless, “a first priority is that government authorities bring
clarity to matters central to business planning.”

** Market News International **

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