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2010 is finally history. The economic recovery, which officially began in 2009, was scarcely evident as the US economy muddled through 2010. It seemed that for every piece of good news, like the strong end to the 2010 Christmas shopping season, was countered by news of a setback, such as unemployment rates that unexpectedly returned to nearly 10% during the same period.

The government’s stimulus efforts have run their course. The TARP program is officially over and tax credits for new home buyers have all expired. The economy now has to perform on its own without all that artificial stimulation.

The fed has reduced interest rates to historic lows to internally stimulate the economy. If interest rates were the cause of The Great Recession this action should have revved up the economy and put us back on track. With federal reserve interest rates at 0% the economy should be white-hot. However, high interest rates are not the problem, so lowering them did not spark an economic rebound. Here’s why with my forecast for 2011:

Unemployment Will Probably Stay Stuck Near 10%
The dirty little secret behind this statistic is that the 10% figure represents only those who currently have no earned income. Those who are working one or more part-time jobs because they can’t find a full-time work, are underemployed in their field, or who are laboring out-of-bounds of their education or training are considered by the government to be employed. When this expanded population is taken into account, the actual unemployment/underemployment statistic is most likely double the official figure.

Unfortunately, there are now multiple barriers to lowering our now chronically high unemployment level. Some of the most important are:

– The huge oversupply of foreclosed and unsold homes – The reasoning here is straightforward: there is no need for new construction in a saturated market, which means no construction jobs. Jobs in support industries that supply new home construction goods and services will obviously also be affected. More on this topic below.
– Continued restraint in consumer spending – more on this topic below.
– Major (and many smaller) corporations continue to outsource overseas everything from manufacturing to admin support – much is made of sending low skill or semi-skilled manufacturing jobs overseas, while the US supposedly maintains its edge through high tech startups at home.
– The government likes to point to numerous high tech startup companies as proof this strategy is working. Some entrepreneurs do successfully start corporations that may eventually employ 50 white collar workers. However, the product they create is outsourced to manufacturing overseas in a factory that employs perhaps 5000 workers to produce it.
– Granted, it may cost less per unit to manufacture there, but those 5000 low skilled or semi-skilled workers employed there are exactly the type of person most likely to be unemployed in the US. So, manufacturing, the great economic engine that for over 100 years was the promise of the high school graduate being able to enter the middle class, is essentially gone, which in great measure explains the growing class rift in our nation.
– Note that when manufacturing is sent overseas, the outsourcing company essentially has to teach the foreign corporation how to create the new product, which is new knowledge that a foreign power can use to its own benefit. China is the best example of this. We have successfully trained and paid the Chinese (and others) to beat us at our own game, as evidenced by China’s growing economic might and a political presence that now must be reckoned with.
– Hiring temporary workers, rather than in-house employees – temporary or contract workers are far cheaper to hire than in-house employees who qualify for benefits like health insurance and the retirement program. The company owes no loyalty to temps or contractors, and they can be hired and fired at will.
– Corporations no longer hire employees with “potential” or experience in parallel or complementary industries – major corporations have ceased to think long-term in many areas, shifting their focus nearly exclusively to near term actions that produce short-term results. Examples of this myopic view range from focusing on the next quarter’s stock earnings per share to viewing employees as a short-term commodity rather than long-term assets.
– Viewing employees as a commodity results in corporate behavior of hiring what’s needed for the moment and discharging them when the immediate need disappears, which in turn results in a goal of only searching for and hiring employees “who can make an immediate contribution to the bottom line.”
– The exponential increase in education, credential, and experience criteria for candidate employees over and above actual position requirements – new hire employees are now expected to “hit the ground running” and be able to “make an immediate contribution to the bottom line.” Like a new electronic gadget, a new employee should be able to “work right out of the box.”
– This new expectation was unheard of only a few years ago during the era when employees were a valuable asset to be invested in over the long term. Then, new hires weren’t expected to be able to make meaningful contributions until they had been with a corporation long enough to learned the ropes.
– Now, most hiring authorities don’t even make the effort to understand what skill set is actually required to perform the job they’re hiring for. So, advanced degrees, myriad commercial certificates, and recent experience in everything are specified in the hope that the overkill will result in a person eventually hired that can do the job.
– These excessive requirements are then passed to the human resources (HR) department, which dutifully uses them as an inflexible tool to screen the applicant database. The popularity of online employment applications has exacerbated this problem, where the HR person can enter “MBA” as a search term and never see the many capable, well qualified people who are discarded because they don’t have this degree.
– As an example, you may not need an engineer with an MBA to be the head of a maintenance department. The better candidate may well be a military veteran non-commissioned officer (NCO) who successfully ran a repair depot.
– Hiring the former NCO would bring superb talent and a broad background into the organization, could probably be hired at a substantial savings for the company, and may stay with the company longer than the highly credentialed engineer who is intent on furthering his career climbing the corporate ladder.
– Further, most large corporations have returned to profitability during the Great Recession through extreme cost cutting, mostly through layoffs in their labor force. Employees who survived the purges were told to take on the extra responsibilities of their former colleagues, so technically the same amount of work is being performed by fewer people (which is responsible for the great gains in national productivity figures compiled by the government and widely reported in the media).
– This approach obviously places all the necessary skill set eggs into fewer baskets, which creates entirely predictable problems when the new multi-taskers eventually leave and corporations try to replace them with another single person who can do the newly defined mega-job, rather than spreading skills (and risk) over several employees.
– The well documented bias against hiring the unemployed – On the surface this bias may seem counterintuitive, after all, someone who’s unemployed is readily available and could probably start Monday, right? However, the corporate thought process generally follows this logic path; “most corporations layoff their least productive workers during a downsizing, therefore if you’re unemployed you were among the least desirable or productive workers or you wouldn’t have been laid off. It follows then that there must be something wrong with you that we don’t know about, otherwise you would be employed” regardless of your skill set, recent experience, or personal references.
– It’s unfortunate that this twisted and nonsensical logic that is frequently imposed on situational “outsiders”, from marital status to any of society’s other membership groupings, has now found its way into corporate hiring mentality.

I recommend Louis Uchitelle’s book, The Disposable American, for more on this topic. (I have no financial interest in this recommendation.)

The unemployment bottom line – The unemployment/underemployment rate will little change in 2011, with those fitting the categories above most affected.

Real Estate Foreclosures Will Continue at a Record Pace and Housing Prices Will Remain Depressed in Most Areas of the Country

The government statistics here are…
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Ihab Salloum