A Pickup in Orders, Not Hiring

A new survey shows increased service-sector activity, but few managers are confident enough to start hiring again

By Esmé E. Deprez

Another green shoot emerged Monday to support the notion that business activity is rebounding, ever so gradually. But even where orders are picking up, managers appear dead-set on avoiding new hiring. Managers, just like consumers, are still lacking in confidence.

In its report for September, the Institute for Supply Management said on Oct. 5 that its index of service-sector activity grew by 2.5 percentage points from August, to 50.9%, after 11 consecutive months of contraction. Anything above 50% indicates growth. The index measures such things as new orders, order backlogs, and employment. Sectors that reported a rise in business activity included mining, construction, retail, transportation and warehousing, educational services, and wholesale trade, according to the ISM. The report helped drive up stock prices, with the Standard & Poor's 500-stock index rising 1.49%, to 1,040.46.

"We'll have to see month over month for the forthcoming months if this is sustainable—I believe that will be the case," says Anthony Nieves, author of the survey. The fact that new orders increased in September's report by 4.3 percentage points to 54.2%, he says, "tells us what's in the pipeline…and that business activity should be equal to or higher next month."

These same industries, however, continued to shed jobs, according to the latest employment report issued Oct. 2 by the U.S. Labor Dept. Construction jobs were among the hardest hit, with a net reduction of 64,000 seasonally adjusted employees in September over August. Retail trade lost 38,500 jobs, and transportation and warehousing lost 15,500. The big surprise was in educational services, where employment fell by almost 17,000. Education had been one of the few areas of strength until recently, along with health care.

Keeping an Eye on Costs

The total loss in nonfarm jobs last month was 263,000, bringing the unemployment rate to 9.8%, the Labor Dept. said—worse than what most economists expected and up from a loss of 201,000 jobs and a 9.7% unemployment rate in August. The U.S. labor market is now experiencing the longest string of rising unemployment since the Great Depression, as payrolls have fallen for 20 consecutive months.

What's keeping companies from hiring, even when business appears to be coming back? That's simple: They don't want to add costs when there's no assurance revenues will keep rising.

Ray DeGrass, plant manager at Dragon Products' cement plant in Thomaston, Me., doesn't have a better outlook for 2010 than he did in 2009. This year, Dragon Products laid off 20% of the plant's employees permanently, and temporarily furloughed 30% to 50% of the remaining 110 workers during seven weeks as the factory ran at two-thirds capacity. The plant, owned by Giant Cement Holding of South Carolina, ships cement by rail, truck, and barge to construction projects throughout New England and Canada. "Construction just seems to be a dinosaur," says DeGrass. "It takes a lot to get it moving again."

A Buyer's Market for Employers

Businesses that resorted to inventive measures to keep their doors open—cutting workers' hours, salaries, and benefits—are now taking an equally cautious approach to expansion. Some are hiring more part-time workers, figuring they can boost hours if conditions continue to improve. Margo Andros, who has owned a lingerie boutique in New York's Grand Central Terminal called Pink Slip since 1999, has hired two part-time workers in the past week as she prepares for the holiday season. But that's after she laid off a full-time manager over the summer. Her business hasn't picked up nearly enough to support an expansion she made last May, doubling her space, to 800 square feet. So Andros is looking to possibly merge positions, knock some of her nine-person staff from full- to part-time, and pay less for management positions.

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