September 2, 2011 / 9:06 PM / 6 years ago

Optimism for U.S. hiring gives way to caution

5 Min Read

NEW YORK (Reuters) - Small business owner Bill Thompson says he doesn't need a government plan to get him to hire more workers -- what he needs is for the economy to get back on track.

"I really don't need incentives. What I need is for there to be activity going on and I'll go out and get the business," said Thompson, who heads a family business called Thompson Pump in Port Orange, Florida.

At the start of the year there had been some cautious optimism among economists and businesses that improving momentum in the U.S. recovery would coax companies into hiring in larger numbers.

But the recovery has slowed to a crawl, and consumer and business sentiment has eroded along with it. The drop in confidence appears to have fed through to the already anemic labor market. Data on Friday showed the economy created no new jobs in August.

"There is still an abundance of caution," said Rob McGovern, chief executive of Jobfox, a social network recruiting website. "In January, corporate leaders were thinking they were out of the woods. Now, everyone's afraid they're going back into the woods."

The collapse in hiring will throw an especially bright spotlight on a new jobs plan U.S. President Barack Obama will announce next week. A top White House aide told Reuters Insider on Friday that the plan will provide "meaningful" tax relief and include a strategy for helping the nation's long-term unemployed.

But analysts argue incentives will provide only a short-term boost, if any, to corporate hiring and that a broader long-term plan to rein in budget deficits and support demand would ultimately have more impact.

With small- and medium-sized businesses making up the lion's share of America's jobs, there are expectations Obama's plan could include incentives to get mom and pop shops hiring.

"Small business is where America works," said William Dunkelberg, chief economist at the National Federation of Independent Business.

The challenge, said Dunkelberg, is that many small businesses are in the service sector, which has been badly hurt by weak consumer spending. While an extension of the payroll tax cut would put more money in people's pockets, they are unlikely to dash out and spend while they're worried about the possibility of another recession.

As long as consumers remain frugal and the direction of the economy looks uncertain, companies are going to be in a hiring holding pattern.

"The fundamental problem is firms don't see demand for their product," said Joel Prakken, chairman of Macroeconomic Advisers LLC, which jointly developed the ADP private employment report.

"If they don't think they can sell the product that a new hire would produce, it would have to be quite an amazing incentive to convince them to do otherwise."

Business owner Thompson echoes that sentiment. His company has cut nearly 100 jobs since 2006 and now employs 266 people. He said the cuts have been handled mostly through attrition, but there have been some layoffs.

"It used to be you would almost automatically replace a person and fill a position," he said. "Now whenever we have a person leave, we do a complete re-evaluation of the need and job requirements and activity level."

Even now, smaller businesses have been hiring at a faster pace than their larger counterparts, though it is still not enough.

Small companies that have under 50 employees have led employment growth this year, according to data from ADP's National Employment Report.

From the beginning of the year to August, small businesses added 603,000 workers to their payrolls, while medium-sized companies with 50 to 499 workers have added 508,000 jobs.

In contrast, companies that employ 500 or more people have added only 45,000 jobs in that timeframe. The economy would have to create 150,000 jobs a month just to hold the unemployment rate steady.

Still, there are pockets of strength. In some specialized industries, such as technology and accounting, companies can't find enough people with the skills they want, labor market experts say.

"If you're a traditional advertising expert, it looks like the Depression to you," said McGovern. "If you are a social media expert, there's probably five open jobs for every three people."

Editing by Theodore d'Afflisio

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