Friday’s employment report was the second disappointing employment report in a row. It stated the private sector only create 83,000 jobs. This leads to the question — why aren’t more jobs being created? There are four reasons:
Capacity Utilization is defined as:
A metric used to measure the rate at which potential output levels are being met or used. Displayed as a percentage, capacity utilization levels give insight into the overall slack that is in the economy or a firm at a given point in time. If a company is running at a 70% capacity utilization rate, it has room to increase production up to a 100% utilization rate without incurring the expensive costs of building a new plant or facility.
In other words, the chart of capacity utilization tells us there is a tremendous amount of slack in the economy. Businesses can simply tap some of this unused capacity rather than hire more employees. The number of hours worked dropped during the recession. Companies can simply increase the hours worked by their existing work force before hiring new people.
Productivity is still increasing. This means businesses are still getting more and more out of their existing workforce. Because of high unemployment, there is the added benefit of lower wages/salaries. From a business owner’s perspective, this is a win/win scenario.
Uncertainty: there has been a tremendous amount of change over the last 12 months. Businesses are still trying to figure out what that means for their bottom line. Until there are firm answers, they will freeze hiring.