Jobs Galore?

True to the recent hyperbolic trajectory of the reaction to good news, today’s ADP report on private sector employment has been greeted as a “blockbuster”. We are being told that nirvana is imminent.

Not so fast.

The news is, indeed, very good. Private payrolls in the US economy added 297,000 new jobs last month. That’s terrific. The good news was spread around all sectors. The vast bulk of the new jobs were in the service sector which created 270,000 of the total. That means manufacturing added 27,000, which is the best performance since 2006. Not only this but the gains came across the full spectrum of business size, with small business adding 117,000, medium sized businesses adding 144,000, and large businesses adding 36,000.

So good news all around.

Add in today’s other report, from the big outsourcing outplacement firm of Challenger, Grey and Christmas, that planned layoffs by large corporations during 2010 were the lowest since 1997, and a much healthier jobs market picture emerges.

So why am I a little skeptical?

Simple: the ADP data is seasonally adjusted. Each of the largest three monthly jumps in payrolls that ADP has reported have been in a December. Apparently ADP has a really hard time making solid seasonal adjustments to year end data. It may have something to do with retailers hiring holiday workers. Who knows? But I would be very wary of declaring a victory just yet. Let’s see a few more reports like this before we join the breathless throng of optimists.

As for those planned layoffs: the rot has to stop sometime. The relentless trimming of workers by our large corporations inevitably has to ebb. There simply isn’t enough fat left to reduce. Or at least there shouldn’t be. The long term march towards leaner staffing surely had to come to a halt. Based upon anecdotal data I would guess that it has gone too far. After two or three decades of starving and reducing their middle and lower levels of workers, most corporations are now too lean to take advantage of sudden upturns in business. They have far less flexibility than they think they have. Productivity has shot up, but wages have not. Senior managers have benefited from the waves of firing they initiated, but the remaining workers are now stretched. Lifestyles have been undermined, and new growth will have to come from a return to a more balanced workforce. This means the next long term trend will be the invention of ways to deploy workers more effectively and the undoing of some of the lean approaches that were so easy to implement. By this I mean that costs can be cut by innovating the way in which we house and organize work, rather than in the way we staff it. Those huge office buildings are dinosaurs of the pre-digital age. Their value will diminish as they are seen as the next big cost to cut. Think iPads and you get a sense of where business organization is headed.

So, yes, things are looking up. But, no, we should not extrapolate today’s reports and expect a boom.