CEOs of the largest American corporations, without aiming at it, shot barn-door-size holes through the rosy jobs picture. Rosy on the surface: unemployment down to 7.7% with 236,000 new jobs created last month. A picture the White House held up as proof of its success. But these CEOs didn’t see it. Not in the US. Though prospects were rosy in low-wage countries.
Last week it was Honeywell CEO David Cote who said that they’d been cutting headcount through attrition, instead of adding to it, at the rate of hiring only two to three people as four or five leave. He expected hiring to slow even more, based on economic uncertainty in the US.
Economic uncertainty! A term that’s now showing up frequently. But one of the things the company didn’t appear to fret about? The Sequester. With the government portion of total revenues being about 11%, the company expected only a minor dent from it in 2013. The problems were elsewhere. As a conglomerate and Fortune 100 company active in a wide variety of industries, Honeywell sees first-hand what’s going on.
“We’ve become more concerned recently,” Cote said. “If we want employment to grow, we have to have GDP growing more like 3%, not 2% or less.” Though growth had stalled altogether last quarter, Cote hasn’t given up hope for growth this year, expecting 1.9%. Yet even 3% growth might not do much for hiring—because Honeywell has been adding plenty of jobs overseas while cutting them in the US. As the Wall Street Journal reported:
Since 2009, Honeywell, which gets 46% of its sales from business in the US, has added 10,000 jobs globally, boosting its employee count to 132,000, while eliminating 2,000 positions in the U.S. Last year, Honeywell trimmed its US workforce by 1,000 jobs to 52,000 employees.
It’s a point of pride: “We have 1,000 less people in finance than we did when I arrived in June of 2003,” Honeywell CFO David Anderson explained. And it even cut executives, 580 down from 600. Trimming in the US, hiring overseas.
Honeywell isn’t the only one. But other companies are actually adding jobs in the US. The net effect is a dreary reality, best depicted by the employment-population ratio, one of the least statistically mucked-up employment metrics. It measures total jobs against the population of age 16 and older. It peaked in April 2000 at 64.7%, then trended down, collapsed during the financial crisis—and hasn’t recovered since! In February 2009, it was 60.3%. A year later, it was 58.5%. In 2011, it was 58.4%. In 2012, 58.6%. In Friday’s report for February 2013? 58.6%. Clearly, jobs have been created, but only at the rate that the working-age population has grown (for an excellent analysis of other issues in the BLS report, see The Wall Street Examiner).
Honeywell spelled out the reasons: growth industries—and they do exist—were balanced out by corporate efforts to shave headcount and cut costs. That process is likely to continue. Because it shows up nicely on the bottom line. Honeywell has been able to increase its profit margin every year since the depth of the financial crisis and expects to make more progress in that direction. And for growth, it will focus more on the Middle East and China.
Then an even bigger player chimed in Monday: General Electric, mega-conglomerate of superlative proportions with products ranging from locomotives and jet engines to light bulbs and medical equipment, with a massive finance division that had been bailed out during the financial crisis, and with a phenomenal sense of what’s going on in the economy.
“The US faces more major ‘political storms’ this year,” wrote CEO Jeff Immelt in his letter to shareholders: “the fiscal situation, repeated debt-limit controversy and tax reform. We fear that this uncertainty will impact capital investment.” Again that word, uncertainty. Attached to the word fear.
A direct jab at the theatrics in Congress and the White House about the Fiscal Cliff and the Sequester. Or the debt ceiling fight, the silliest of all controversies that has been causing people around the world to scratch their heads for two years, wondering how Congress could be insane enough to block the government from borrowing the very money that Congress told it to spend and borrow.
Immelt wasn’t just talking about GE. He was talking about American businesses in general—and how they were reacting to this uncertainty. While housing and the consumer were improving, he wrote, “capital investment remains sluggish.” Result: the “weakest recovery since the 1930s.”
But capital investment, a powerful driver of job creation, did happen. Massively so. Overseas. So GE was confident in its growth, he said, not because of anything exciting going on in the US, but because of its activities in the developing world, particularly Africa, the Middle East, and China where GE has become a big investor. As long as that trend persists, as long as Corporate America plows its money into investments overseas to create jobs there, the job market in the US will remain a dreary affair.