Business Blog

By:  Doug Carlton, Carlton Business Finance  http://www.carltonbusinessfinance.com

As the economy begins to slowly emerge from the recession, there are increasing indications that we may be looking at the early stages of a jobless recovery.  This happens in the economy when gross domestic product (GDP) begins to increase but job growth does not keep up with it.  Automobile manufacturers are a classic example.  Production is beginning to increase as sales begin to pick up.  But the industry has shrunk dramatically.  Thousands who have been laid off from high-paying manufacturing jobs no longer have an industry to go back to now.  So from the current existing industry, we see GDP starting to increase, but nowhere near enough necessary to bring back many jobs.  Tied at the hip of the auto industry are tool and die makers.  Machines are used to put cars together – the bodies, frames, parts, everything.  Tools have to be made for someone to make those components to sell to the industry.  Many customers are now gone, so the tool and die industry is suffering – another industry that will not get back to previous employment levels.

In many applications, productivity and robotics are replacing people.  More products can be produced by less people – GDP increases, jobs don’t.  Simplified design which makes a product easier to produce and sell means higher GDP with no commensurate increaser in workers.  Also looking at the current recession, because so many companies have made fairly severe job cuts, it appears more and more likely that many of these employers will start to increase hours of remaining employees before beginning to hire new ones.  And of course, there is the internet.  Think about all the things that can be done on the internet now that used to require an interaction with a person.

Let’s take a clicks-and-bricks (as opposed to clicks-to-bricks) retail example.  Take books.  Everyone knows the huge success Amazon has had as a seller of books.  But a lot of people still love to go to a bookstore and browse.  Barnes & Noble has both bases covered.  Where there is sufficient population and the right demographic, they will put a bookstore.  But where there are not enough people, they have their website.  Clicks and bricks – more sales but without the commensurate increase in the number of employees that it would take if the sales were all being made through retail outlets.

At this time, the demand for workers in the economy is showing very little sign of major improvement.  Federal Reserve Chairman Ben Bernanke said yesterday at a hearing “… the unemployment situation is very weak….”  Put a little less delicately, the economy stinks and isn’t going to be improving faster any time soon.  This means that for a lot of small businesses, their financial performance will probably deteriorate.  When a business, especially a small business, goes looking for financing, banks are going to focus probably even more strongly than in the past on the most recent year’s financial statements.  That does not bode well for access to credit because even when banks begin to increase their lending, many small business owners will not be able to get it because their numbers have declined.  So we may find ourselves facing one of those “huh??” moments when there is money available but nobody to borrow it.