Pace of hiring slackens in US
Slower job growth and higher gas prices may crimp consumer spending.
| New York
For the past six months Qimonda, a semiconductor manufacturer, has been ramping up its employment, adding 200 jobs over the past six months in Richmond, Va.
But now the company, which makes the computer chips that go in consumer products such as MP3 players, is adding jobs only as people leave.
"We're pretty stable. We just have a little expansion left but not big numbers," says Don O'Grady, vice president of human resources at the Cary, N.C.-based firm.
In some ways, Qimonda is typical of what's happening to the economy, especially the crucial jobs market. The economy – and the nation's ability to produce new jobs – is still growing, but at a much slower pace than in the first quarter. How much the economy is slowing will probably be a main topic when the Federal Reserve meets Wednesday to discuss interest-rate policy. In addition, there is now some economic evidence that the downturn in housing and autos may be spreading to other sectors such as high tech, retailing, and banking.
"It's not a disaster," says Scott Anderson, senior economist at Wells Fargo Economics in Minneapolis. "But it's an additional head wind on consumer spending, which is already beset by rising gasoline prices and the resetting of mortgage rates."
The latest signs of an economy tapping the brakes came on Friday when the Labor Department released the April employment numbers. The report showed a gain of 88,000 jobs, well below the 125,000 needed to provide jobs for people entering the workforce. The unemployment rate edged up to 4.5 percent from 4.4 percent in March.
"The economy is underperforming its growth potential," says Peter Morici, a professor at the University of Maryland's School of Business in College Park. "The jobs number is consistent with a growth rate for the economy of about 2 percent – nothing to celebrate."
Hiring had been a bright spot
Until recently, hiring was one of the bright spots in the economy. For the first three months of the year, nonfarm employment grew by 513,000 jobs, or 171,000 per month. However, this strong growth rate concerned economists because the gross domestic product grew at a 1.3 percent rate. The economic implication was for a sharp reduction in productivity.
"Seeing job growth fall gives us some breathing room as far as productivity growth slowing," says Mr. Anderson. "This may ease some concerns on the inflation front."
When the Fed meets Wednesday, Anderson expects, it will not make any changes in interest-rate policy. "They may keep their inflation bias in place but paint the current outlook as weaker in terms of economic growth," he says. "This opens the way for a rate cut down the road, perhaps by the end of the year."
The slowing job market did not disturb the financial markets at all. Last week, for the fourth consecutive week, the Dow Jones Industrial Average finished on the plus side. For 16 consecutive quarters, earnings have increased at a double-digit rate, says Michael Barron, CEO of Knott Capital in Exton, Pa.
"We think that's about to end and will be more in the 5 to 6 percent rate for 2007 because of the slowing economy," says Mr. Barron. "People are obviously looking for this economic weakness to result in a Fed rate cut. But the question investors need to ask is, with the amount of debt on consumer balance sheets, are the rate cuts enough to provide a meaningful economic recovery?"
One area where the slower jobs picture is showing up is at craigslist, which has an online employment bulletin board. Last year at this time, the number of paid job listings was 70 percent higher than the year before. Now, it's running at about 40 percent to 50 percent over last year, says Jim Buckmaster, CEO of the San Francisco-based company.
"We're seeing an unexpected slowdown in technical hiring, particularly in Silicon Valley and the South Bay area," says Mr. Buckmaster. "Another soft spot is construction and the skilled trades."
Any slowdown might help some of the hiring bottlenecks that are showing up. In mid-April, the Greater Richmond Partnership Inc., an economic development organization in Virginia, surveyed its members. Seventy companies said they plan to expand in the near future.
With an unemployment rate of 3.1 percent in the region, it's becoming more difficult to find workers, says Gregory Wingfield, CEO of the partnership.
"One of the things we're hearing in the surveys is that there is a little squeakiness to find the right skill sets, especially engineering and registered nurses and lab technicians."
'Insufficient technical people'
Mr. O'Grady of Qimonda can attest to the difficulties in finding workers with the right skills and education to operate sophisticated equipment. "There are just insufficient technical people for the demand," he says.
To limit employee turnover, the company sends its managers to a leadership academy, tries to foster a sense of community, and encourages employees to get involved in company sports leagues. "Our approach is to create an atmosphere where people want to work and keep attrition low," O'Grady says.
Some companies say they are raising salaries to attract or keep tech talent. In San Francisco, Esurance, which sells insurance on the Internet, says it's difficult to find enough network engineers and software developers.
"The salaries are going up twice as rapidly as most other professionals," says Sandy Hynes, vice president for human resources.
The company started the year with 1,400 employees and expects to end the year with 2,000 workers – hiring new claims processors, customer-service representatives, and IT workers. To try to improve the pipeline of potential candidates, the company plans to begin an internship program this summer for college students.
"We're growing so fast we have to add additional brainpower," Ms. Hynes says.