Jobless Recovery in 2010 - MF Global

Recently MF Global released a research note concerning the top ten trends in 2010. One of the trends was the premise of a jobless recovery.

The following is the investor note from MF Global:

"2010 will be characterized by a jobless recovery. MFGR sees the unemployment rate peaking at 10.5% and closing the year between 9.5% and 10%. The unemployment rates in EM and ASEAN counties should fall more steadily while it will likely increase in Europe. MFGR is expecting the latter as many of the stimulus programs initiated by European government included programs directed solely at hiring or preventing layoffs.

Out of a survey of 10 Euro-Zone countries, 8 employed labour activation measures. Many of these programs are set to expire in the new year. As employers are facing a lack luster recovery, the likelihood of a robust expansion in the labour markets sans government incentives is minimal. Furthermore, employers will likely be forced to cut back on labour as its costs up to the point have been subsidized.

On the US front, the outlook for taxes is murky and the healthcare initiative which will likely force all employers to provide care or pay a penalty will discourage the expansion of the labour force. Though the Obama administration is extending the capital gains holiday for small businesses, employers need to feel confident that their profit margins will not erode in the future due to tax increases in order to genuinely contribute to job growth. Moreover, budget shortfalls at the state and local government level will cap government hiring.

Globally speaking, there has been a significant increase in structural employment that is now part of the new normal. The collapse of the financial markets has led to a permanent shrinkage of the financial industry and the impending regulation will make financial innovation, a factor that does lead to job growth, very difficult. The manufacturing industry faces the same problem. Globalization will lead to the removal of manufacturing jobs in advance economies and cause a shortage of skilled labour forcing many to look to build other skill sets."

Source: MF Global

Manpower Employment Outlook Survey Indicates World's Labor Markets Will Still Be Challenged in Fourth Quarter 2009, but Many Headed in the Right Direc

"According to the global Manpower Employment Outlook Survey results released today by Manpower Inc., the fourth quarter of 2009 will continue to challenge job seekers in labor markets around the world, but employer hiring expectations have improved somewhat from three months ago in nearly two thirds of the countries and territories surveyed, suggesting an easing in the pattern of job cuts prevalent for several quarters. Hiring plans are strongest in the emerging markets of India and Brazil, while job prospects remain weak in the United States. However, a greater percentage of U.S. employers expect to keep staff levels unchanged in the quarter ahead, suggesting some stability. Across Europe, hiring sentiments remain generally negative but forecasts have improved in nearly half of the countries compared to the third-quarter forecast."

"Job seekers will still have limited opportunities as our data shows the world's labor markets will not experience recovery in the fourth quarter. The good news is that many markets appear to be heading in the right direction with results from 20 countries and territories showing positive movement from three months ago," said Jeffrey A. Joerres, Chairman and CEO of Manpower Inc. "Interestingly, employers in emerging markets are more optimistic about hiring compared to their counterparts in more developed economies. While a quarter-over-quarter comparison shows modest improvements in six of the G7 countries, with the exception of Canada, all are reporting negative hiring expectations. As demand for their products and services continues to be weak, employers remain very selective in their hiring process, resulting in a sluggish job market."

Employers in 17 of 35 countries and territories surveyed expect some positive hiring activity in the quarter ahead, while those in 15 report negative hiring expectations with 10 reporting their weakest hiring plans since the survey was established. Employers in 31 countries and territories are reporting weaker year-over-year forecasts. Fourth-quarter hiring plans are strongest in India, Brazil, Colombia, Peru, China, Australia, Singapore, Costa Rica, Canada, Taiwan and Poland and weakest in Romania, Spain, Ireland, Japan and Mexico.

Many employers in the 18 countries surveyed in the Europe, Middle East and Africa (EMEA) region continue to report negative hiring expectations for the quarter ahead, with employers in Poland, Norway, Sweden and South Africa reporting the only positive, but slow, hiring activity. However, compared to three months ago, outlooks improved in eight EMEA countries. In contrast, where year-over-year comparisons can be made, hiring intentions are weaker in 15 countries. Job prospects in the region are strongest in Poland and weakest in Romania.

"Eighty percent of employers in Europe are telling us they will make no changes to their staffs, which will most likely lead to some labor market stability in the fourth quarter," said Joerres. "European job seekers in the Manufacturing sector will continue to encounter a difficult market, particularly in Germany, where employers lower their hiring expectations for the sixth consecutive quarter."

Employment prospects have improved in comparison to the third quarter across six of the eight countries and territories surveyed in the Asia Pacific region. However, hiring activity is expected to be slower than historical patterns across the region. Employment prospects are strongest in India, China and Australia with the weakest and only negative outlooks reported in Japan and New Zealand. Compared to 12 months ago, employer hiring expectations are weaker in all countries and territories, most notably in Japan, India and Hong Kong.

"Indian employers have absorbed the layoffs conducted in the third quarter and are telling us they will begin hiring again at a conservative pace, but most intend to keep their workforces intact through the end of the year. Government stimulus efforts around infrastructure projects are contributing to accelerated hiring plans in India's Mining and Construction sector," said Joerres. "Meanwhile, hiring expectations in China are among the most optimistic of the year, with outlooks improving from three months ago across all industry sectors, particularly in the Finance/Insurance/Real Estate and the Services sectors."

Across the nine countries surveyed in the Americas region, hiring expectations have improved from three months ago in all countries with the exception of the U.S. and Mexico, where hiring plans of employers in both countries are at their weakest since Manpower established the survey. On the other hand, year-over-year comparisons reveal weaker hiring activity throughout the region. Manpower surveyed Brazilian employers for the first time this quarter.

"The solid job prospects in Brazil are being bolstered by the Services sector where 37 percent of employers expect to add employees in the quarter ahead. Employer optimism in Canada bounces back into positive territory with the Construction and Finance/Insurance/Real Estate sectors holding the most promise for job seekers," said Joerres. "To the south, the U.S. and Mexican labor markets continue to struggle in tandem, with the majority of employers continuing hiring freezes, opting instead to get work done with the staff they have until conditions improve."

Source: Manpower

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With this report, it shows that Manpower's largest market including France, and the United States have not shown robust growth. Hence, with valuations in question be cautious going forward with this choppy return some stability.

Disclosure: No affiliation with Manpower.

France’s unemployment rate climbs

"France’s unemployment rate climbed to the highest in at least three years in the second quarter as companies cut jobs in an effort to squeeze costs after the worst recession since World War II.

The jobless rate rose to 9.5% from a revised 8.9% in the first quarter, Paris-based statistics office Insee said today. Excluding France’s overseas territories, the unemployment rate increased to 9.1% from a revised 8.5% in the first three months of the year.

While France exited a yearlong recession in the second quarter, with gross domestic product expanding 0.3%, economists expect more job cuts as companies implement decisions taken when the economy was shrinking.

“Assuming the turning point in the economy came in the second quarter, that would imply unemployment peaking at the beginning of 2010 at the earliest,” Laurent Bilke, an economist at Nomura International in London, said by phone before today’s report. “Jobs decisions are very heavy, they’re the last thing you adjust.”

Companies such as Alcatel-Lucent SA and Air France-KLM Group are trimming their workforces to match weaker sales triggered by the recession.

Almost 700,000 jobs will be shed in 2009, Insee forecast last month. So far this year, 420,900 jobs have been lost, according to Labor and Finance Ministry numbers.

The government is preparing for further job cuts this year by hiring employment agencies to help jobseekers find temporary work. In June, the Finance Ministry began offering 1,000 euros (1,428) to companies for every person hired as an apprentice in an effort to combat youth unemployment. The measure is scheduled to remain in place for one year."

Source: Reuters

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This is an interesting piece. During the last conference call, Manpower said that the French market has stabilized. It will be interesting to hear Manpower provide more color regarding their French market where they are the market leader if they indeed see this market stabilize. The European market continues to see high unemployment rate and bleak signs of an upturn. Although France and Germany have seen an up tick, it remains to be determined to see if this is sustainable.

Kelly Services falls on comparative performance

"Stifel Nicolaus analyst James Janesky said in a client note that he views all staffing and employment-related stocks unfavorably "amid continued weakness in the employment market and (we) believe there is potential for our entire ... group to pull back from current levels following the sharp run-up from early-March lows."

"Analyst Ty Govatos of C.L. King & Associates said the stocks could rise twofold or more as business improves in the next two to three years, but he cautioned that his calculations do not include risks that could halt the stocks' climb.

Kelly Services Inc., Manpower Inc. and other staffing companies will likely not perform as well as other companies, though they could still climb between 70 percent and 115 percent, he said in a client note."

Source: AP

Basically, I've been harping on the point that these employment, human resource stocks have been mostly overvalued. With such declines to their revenue and net income compared to the boom present in 2007, there is no way these companies such as Kelly Services and Manpower deserve such multiples.

The multiples that these stocks are trading at are mind blowing considering their businesses have faced tremendous downwards spiral since the 2007 boom.

Sales growth, earnings, operating margins have continued to decline and have only stabilized at a bottom. Rather then drive earnings the recent run up has been purely on speculation that we are entering another growth phase. With governmental debt at an all time high, and growth primary coming from government stimulus spending rather then from the private sector, consumers will continue to feel the brunt of this downturn.

End result is low levels of manufacturing. Tepid demand.

Rebalancing global growth: A long way to go

"Governments can prop up economies temporarily, but rising budget deficits are not a route to sustainable growth. Eventually burgeoning debt will limit the room for fiscal manoeuvre, and politicians may balk at renewed stimulus long before then. Worries about the budget deficit are already weighing on political debate in WashingtonA solid global recovery demands healthy and balanced growth in private demand. Unfortunately, that still seems far off. "

And an interesting comment from "sebouh":

"Indeed a long way to go

This week the number of Americans filing for jobless benefits rose by 30,000 in the week ended July 18, the Labor Department reported Thursday. The total for the week was 554,000With nearly 15 million peolpe out of work, according the official figures, and 6.5 million jobs having been eliminated since the recession begain in December of 2007, this week's initial claims report spells increasing social misery for millions of workers.Wall Street, however, responded to the jobless claims report, along with better-then-expected corporate earnings and a slight increase in June existing home sales, by pushing Dow Jones Industrial Average up 188 points, ending the day above the 9000 mark for the first time since last November.The diverging fortunes of workers and corporate elite are the result of ruthless cost-cutting by big business, which is taking advantage of the recession to slash jobs and wages and drive up productivity worldwide. The banks and big corporations are being abetted by the policies of the Obama administration.In other words, this disperity does not lead to healthy recovery prospect and this further widens the risk for another round of economic contraction.

It is this increased expoitation of workers and the prospect of a permanent reduction in wages and benefits that Wall Street is celebrating. The implications for the working class are nothing short of catastrophic.Meanwhile the banks, which have benefited from hundreds of billions in bailout cash and trillions more in other subsidies, at taxpayer expense,are flaunting their good fortune by ramping up salaries and bonuses to levels high or higher than those prevailed before last year's crash.Moreover, according to Washington Post reported Thursday,"So far top six US banks have set aside 74 billion USD to pay their employees, up from 60 billion USD in the corresponding period last year." As the newspaper points out, this windfall will go disproportionately to top executives and traders, in the form of multi-million dollar compensation packages.

To conclude my statement, the world economy is showing some tentative signs of economic recovery due to massive government stimulus packages and bailouts in most developed nations. These government measures, however, will be "unsustainable" in the long run.In addition, the consumer demand will not come back as unemployment is continuously on the rise in most developed and developing countries."

Source: http://www.economist.com/opinion/displayStory.cfm?story_id=14085688&source=hptextfeature&mode=comment&intent=readBottom