Companies spending more--and hiring less

Unemployment is down and business spending is up, so it's time to laugh at all that talk of another recession, right? Unfortunately there are more than enough other numbers to put a stop to any laughter.

The U.S. unemployment rate dropped from 9.1 percent to 9 percent in October because 80,000 jobs were created. We're up nearly a million jobs for the year. Nor is that all. "Capital Spending Nears 2008 Level as U.S. Skates New Recession," Bloomberg tells us. In the third quarter of this year, capital spending rose 24 percent to $43.3 billion as companies made upgrades to plants, property and equipment. This shows "some executives embracing the likelihood that the economy averts recession."

What this really shows is some people desperate for anything resembling good economic news. You don't have to look very far to find the problems here.

Rise in productivity raises unemployment

Let's look at capital spending, which is supposed to be a leading economic indicator. Corporate investment in equipment and software climbed to an annual rate of 17.4 percent in the third quarter. That spending is likely focused on one thing: Increasing worker productivity. Getting more out of the people they have is how companies avoid hiring new workers. Companies are very good at this. That's why third quarter productivity was up 3.1 percent over the quarter before. It had declined in the two previous quarters.

Companies are spending more money on the machines needed to automate more tasks. For a long time people equated automation as only decreasing blue-collar jobs. Even though that is no longer the case the image persists. Improved productivity explains years of wage declines for average workers and increased income inequality.

That's why we aren't creating more jobs. Those 80,000 new jobs in October weren't even enough to account for the roughly 100,000 new entrants to labor force every month. The drop in the unemployment rate has much more to do with the polling than it does actual employment numbers.

Grim times for the unemployed

Of course, the lack of jobs means people are staying unemployed longer. Nearly 5.9 million Americans had been unemployed for at least 27 weeks in October, according to the U.S. Labor department. While this is an improvement - it was 6.2 million in September - it isn't much of one. More than 42 percent of those unemployed have been out of work for at least six months and 4.1 million people have been out of work for more than a year.

Because of this most of the unemployed are now not even getting benefits. In early 2010, 75 percent of the unemployed were getting unemployment insurance. That number is now down to 48 percent. This is because so many are simply running out of benefits. Unemployment benefits are capped at 99 weeks by the Federal government but the actual amount of time people can collect depends on state law. Right now 20 states let workers collect for the full amount of time. So far about 2 million people have used up 99 weeks of checks and still can't find work.

It's not like those checks are all that lucrative. Weekly unemployment checks average $300 nationwide. That's before taxes. Still the money does help. The Census Bureau says unemployment benefits kept 3.2 million people from slipping into poverty last year. The Census Bureau's definition of poverty is kind of stunning. A family of four are above the poverty line if they have an annual income of more than $22,314. Imagine you, the spouse and two kids trying to get by on $22.5. It may not be the definition of poverty but best case scenario I can come up with is living in the car.

So, it may not be the definition of a recession ... but it will do until the real thing comes along.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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