Are We Out of the Economic Woods? Not Quite Yet

Mike Ginsberg

Recovery managers and those in the ARM industry tasked with tracking liquidation results must have breathed a collective sigh of relief last week after reading the headlines posted by mainstream media about the unemployment rate. The Washington Post, for example, stated the unemployment rate “plummeted to its lowest level in more than two years in November” while the Wall Street Journal proclaimed the unemployment rate fell sharply, dropping 0.4 percentage points to 8.6%, “its lowest level in 32 months,” and “the first time it has fallen below 9% since March.”

We also learned last week that US employers added 120,000 jobs in November and the Labor Department even revised upward its estimates for job gains in September and October, suggesting the job market has been stronger throughout the fall than we all initially believed.

Time and again I have said that unemployment improvement is the single most important driver of improved financial results for recovery departments and ARM companies. So, are we out of the wood yet? Are we at the point where we can expect sustained improvements in recovery? Not so fast. Don’t increase your 2012 forecasts just yet. Consider the following tidbits of data:

• The reduction in the unemployment rate was fueled by increases in the retail and hospitality sectors, which came from short-term and unsustainable seasonal hiring to handle holiday shopping and traveling increases, and actually overshadowed significant reductions in manufacturing, pharmaceutical, and government jobs.

• About half the improvement in the jobless rate came from people who gave up looking for a job and dropped out of the labor force, meaning they no longer count as unemployed. The number of long-term unemployed barely budged at nearly 5.7 million.

• The pace of economic recovery is likely to slow even further in the New Year, as state and local governments have been cutting budgets and shedding workers, dragging down economic improvement at a time when the private sector is showing signs of getting back on its feet.

• Consumers have been dipping into savings to keep up their spending amid stagnant wages, a pattern that is unlikely to continue in the long term.

• Even President Obama took a subdued position in speaking about the steep drop in November joblessness. Even as he pointed proudly to 21 straight months of private-sector job creation, he used the occasion to urge Congress to extend unemployment insurance benefits and cut the payroll tax, both scheduled to expire in December

Yes, the US economy is moving in the right direction if you ask me, but the latest numbers hardly make for changing your forecasts yet. More than two years after the official end of the recession, the U.S. recovery remains on a slow pace at best, growing at an annual rate of less than 3% by most estimates (less than most years’ cost of living wage increases). The good news is that the recovery has proved to be more resilient than many economists originally feared, and the warnings of a possible “double dip” back into recession earlier this year have faded in the rearview mirror.

Mike Ginsberg is the president and CEO of Kaulkin Ginsberg Company. You should follow him on Twitter @mike_ginsberg. And if you haven’t done so already, be sure to download a free copy of the Kaulkin Ginsberg Q3 2011 M&A Report which features additional social media advice for outsourced business services companies.