2004 – What Now?

Jan 1, 2004

Well, here we go! The news to coin a phrase is all over town. The combination of three straight years of tax cuts, intelligent Federal Reserve policy and the natural resilience of the American economy have yielded the inevitable result. Even the ultra-cautious Alan Greenspan has called the recovery “astonishing.” 8.2% third-quarter growth, corporate profits up 30%, business spending roaring along, consumer confidence soaring, stock market going gangbusters, manufacturing up, declining unemployment rates…. It is an almost-totally upbeat picture. The Recession that began in 2000 to be further weakened by September 11th and corporate scandals is fading fast to be replaced by the coming Boom…

Rock ‘n’ Roll?

So what now? Given the likelihood of a massive recovery, is it not time to “party like it’s ’99”? Add to staff, open more offices, “mine the Internet,” go to conferences, buy new computers and software, expand into temps and contract, lease new space, maybe franchise or go public, borrow money to double our bets and get rich? Heck, no! And if you do so, you may have missed the bankruptcy train in our industry so far, but you may find that it’s still not too late to get on board. Because while the Boom you expect is definitely coming, you’re still going to have to wait a while. Here’s why…

A Natural Drag

The words “lagging indicator” seem to have been coined for our industry. Why is this? It is because in the aftermath of a Recession, companies are still “fighting the last war”. They are still focused on the painful results of expanding too fast and loose cost controls which cost them so much when the Recession first hit. It may warm our hearts to hear of an 11.3% increase in business spending, or of an 18.4% increase in IT spending in the 3rd quarter of 2003. However, the reason companies will spend on fixed one-time costs is so they can get more efficiencies, increase productivity, and not have to spend on on-going variable costs such as more staff. At some point, of course, they will have to, and it will filter to our industry. But not quite yet.

Companies, of course, are hiring to some degree. In even a slow economy, many of us get by or do well. And 2004 will see substantial improvement. But the short-term leading edge indicator of a pick-up in hiring will not be our industry. Rather, it will be the Internet hucksters who will con your clients into thinking they can avoid paying your fees. With almost no exceptions, every book, every “trainer,” every software program, every e-recruiter or web sourcing product that pretends to benefit you via the Internet is available first-and-foremost to your client’s HR department to undercut you.

Will this work for your clients? No! The unemployed, unhappy and unqualified denizens of the Internet are standard-issue off-the-rack K-mart suits; our clients require custom-tailored made-to-measure merchandise not available in the discount-house public square of the Internet. Nor do personnel people have the sales talent to actually “recruit,” regardless of efforts from some to teach them. The poor results they achieve will cause them to realize this, and your business will prosper. But it is a good reason why there will be a delay … and why you should not compete with your clients for the same mundane candidates to be readily found on the Web.

Finally, the speed of a job market recovery is closely related to how far it has fallen. A high unemployment rate means a fast resurgence because there really is not “slack” to absorb increasing business. The early ’80’s Recession had a fast job recovery in part because of a 10.8% unemployment rate at its peak. However, it was 35 months after the end of the 1991-1992 Recession before rates went back to Pre-recession levels. How high was unemployment in that Recession? 7.8%. And this one? Our highest unemployment rate? 6.4%, and it was only six months ago. The “formal” recession ended 25 months ago. Will our industry be in a boom market, roaring along? Absolutely! But it’s still going to take a little while.

An Unnatural Drag

Beyond the delay on the return of our industry to high growth, we have a one-time additional factor. The Presidential election.

Let’s say that you actively desired to harm the economy as much as possible. What would you do?

Well, first of all, you would increase taxes dramatically on all taxpayers. You would reduce deductions for capital equipment for businesses, especially small business, and raise taxes on them. You’d institute a protectionist philosophy, roll back free trade, and implement a “new era of regulation on American business.” A higher minimum wage would help, as would staffing the NLRB (National Labor Relations Board) and Department of Labor with those with a strong anti-business bias. You would start huge government-sponsored social programs. And of course, if you could dismantle a good part of the War on Terror and raise chances of more attacks on Americans at home and abroad, that might have a major effect. Yes. That would do it.

That of course is the precise exact publicly-stated economic plan for both opposition front-runners as this is written. It is always possible that both will stumble, and be supplanted by more-responsible, less blatantly anti-business contenders. But it seems unlikely.

One may discount the effect of this, thinking the current administration is a likely winner. And that is, of course, true. But when a nominee emerges, he will receive what Richard Nixon called “media steroids,” i.e., the adulation of a supportive major media, and the race will tighten.

The possibility the outside chance that a candidate who could do such harm to the economy might be elected will have a chilling effect on American business. Just as things really begin to take off in the second quarter of 2004 will come the cold rain of possible tax hikes, protectionism, regulation… Who can blame any major or mid-sized business for reducing expenditures and hiring plans in fear of a media-promoted candidate who promises these growth-destroying policies? A temporary slowdown in the third quarter as companies consider the results of an administration change is a possibility.

Will our industry return in boom times? Incontrovertibly. And we will all prosper. But not until after November.

So What Do We Do?

The market as it relates to our industry will be improving this year, of course, but only gradually. Over-exuberance is ill-advised, and will depress you significantly when claims of a burgeoning market do not translate into automatic increased production for you.

There are a number of steps, both from a management and a “desk” perspective that should be followed in a rapidly-dwindling Recession while waiting for the REAL Boom. They are as follows:

1) Focus on Quality Searches

As the economy continues to improve, you will be picking up more search assignments. Be careful. A trap awaits. Their quality will, on the average, be less than during the Recession. Why? Because there is less immediacy in a search based on addition-to-staff rather than replacement. In a non-boom market, such searches move more slowly, and there is a greater tendency to look at other sources and more candidates.

Equally to the point, a search-short consultant may jump at an additional search without appropriate consideration.

As the economy improves, selectivity of searches surprisingly will be far more important if your production is also to improve.

2) Real Recruiting

Honest genuine non-Internet recruiting has a massive advantage in the early and middle stages of a Recovery it is wonderfully effective! Why? Because the build-up of dissatisfaction from people who would have changed positions had the economy been better maximizes your results.

Innumerable polls and studies now indicate a high degree of discontent in the job market, with as many as 61% of employees stating that they will “definitely look for a new position when the economy improves.” Will they? No. Fear of change and procrastination will take over, and there is no way the best- qualified will put their credentials in the public square of the Internet for all to see, or even take time to screen newspaper ads or job boards. “Job-hunting” is a scary business for most people.

But will real recruiting move them? Absolutely! Those with excellent real Recruiting skills will take full advantage.

3) Expansion?

Well, maybe, but carefully. If you’re a manager, it will take another full quarter of serious growth for companies to really start hiring. A delay in adding to your staff until the second quarter (April-June) of next year makes a lot of sense.

Getting into other facets of “staffing” does not make sense. Short-term, you’ll see growth in temps and contract, as companies will be reluctant to add to permanent staff until after the election. By the time you get competent at it, however, the growth will have faded, and permanent search and placement will be ascendant. Don’t try to go for the “new hot market.” By the time you get established, it won’t be. If you’re in permanent search and placement, stay right where you are. Good times ahead!

4) Don’t Overspend

As the market improves, you will besieged with claims of how you should “get on board” and “prepare for the Boom.”

How? By competing with your customers for the same candidates on the Internet, buying more software, more computers, more techno-whiz bangs, more conferences…. This is not what you need!

The reality is that your firm is almost certainly in the best position right now to enjoy a resurgent economy. Major changes at this point will do nothing but distract you. All you need is a better market …. and it is on it’s way! Stay focused on good work habits. See article “Maximizing Output on the Verge of Victory” ( for more on this. And it makes sense to strengthen the real recruiting skills of your firm by means of repeatable, reviewable training products not available to HR people. But you are right where you need to be.

You’ve outlasted most of the competition. You’ve developed good habit patterns. Your market will gradually improve this year. And post-November with an even break comes the real Boom!

You’ll deserve it .

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