Productivity Says It All

In the last 5 weeks, filings for first time unemployment claims have been falling. Yesterday, only 557,000 had to file for unemployment insurance. This was the lowest level of claims since September 2008. But, at the same time, the measurement of productivity surged once again (Click to See Full Story: "Jobless Claims Drop Again; Productivity Shows 8.1% Gain").

We have now entered a point were job losses have abated because businesses have gotten themselves to the lowest level of staffing possible while still maintaining operations. That is why productivity is so high. All that a high productivity level says is that there are fewer workers producing the same amount of output. This is usually achieved by letting workers go but, it can also be achieved by converting workers from full time to part time.

However, there is a limit to productivity increases. At some point, companies either have to start hiring again or contend with worker burnout; assuming the company is involved in an ongoing business operation. Otherwise, a company just may be at a critical point where it can no longer survive because staffing is at the absolute minimum and no further cuts in personnel are possible.

At this juncture, it is hard to tell where this economy sits.

Are we at the brink of a new group of companies going belly up? Or, are we at the point where the economy is ready to turn itself around and companies will begin hiring again? Certainly, most businesses are probably trying to avoid letting workers go during the holiday season. That may be why unemployment claims are less than expected. Also, there have been some increases in hiring as retailers have geared up for increased holiday sales activity. So, I would think we won't know what is going on until mid-January. At that point, we will either see unemployment claims rising again or, continuing to fall. One thing is for sure, we can't continue to have productivity remaining at historically record levels without the business community either starting to hire new workers "or" look to going completely out of business. That's because high productivity reflects a point of tension in the economy that has to be ultimately resolved; one way or the other.

One last thing. The American worker is in a really tight spot right now. They are being squeezed by the fact that there are no jobs out there. That means that an overworked employee must work harder; like it or not. The old option of quitting and going to work elsewhere just doesn't exist. The fact that the job market remains so tight sits on the shoulders of Congress and the President. Companies are facing high uncertainty next year with the Bush tax cuts expiring; higher tax burdens associated with Cap and Trade and health care reform; possible penalties for not providing health care to employees; a possible Afghanistan war tax; and additional imposed taxes on small businesses making more than $200,000. No small business operator in their right mind would hire under these circumstances. That's why the end of this recession could truly be a jobless recovery.