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Good News: Home Depot Is Adding Jobs. Bad News: They May Not Last

In what looks like a vote of confidence in the economy, Home Depot (HD) is adding workers. But there's reason to believe the home-improvement retailer is running ahead of reality.

Frank Blake, Home Depot's CEO was among the more forthright retail executives at the start of the recession. He scaled back operations, cut jobs as circumstances required, and developed new survival strategies, such as helping consumers accomplish small home maintenance projects that were within their reduced financial means.
Now, Blake tells Bloomberg that he's hiring. He made the decision late last year based on an improving retail and housing market that helped the company post stronger-than-expected profits. Home Depot predicted a 2.5 percent advance in sales in February, which reverses a trend of declines extending back through last year. Consumers, Blake concluded, have become less reluctant to spend.

But is he right? A recent report issued by Colliers International is more pessimistic. The firm, which tracks commercial real estate and retail, noted in its U.S. Trends and Retail Opportunities Report for 2010:

  • After reaching record lows in early 2009, consumer confidence levels have improved but will only grow if employment does the same.
  • The U.S. lost 4 million jobs in 2009 on top of 3.1 million jobs lost in 2008. National unemployment stood at almost 10 percent as of 2010's start. Job losses will likely bottom out sometime during the first quarter, but growth will be minimal.
  • Credit card companies are providing service to fewer consumers.
  • Once-hot growth areas like Arizona, California's Central Valley, Florida, and Las Vegas are overbuilt with too many homes and too many stores.
The Colliers report concluded that "The New Frugality," where conspicuous savings rather than conspicuous spending is the social driver, will remain in vogue for at least the next five years. The company doesn't expect normal employment levels to return until 2016 and anticipates at least a couple of more years with more than eight percent of the population out of work, a level sufficient to constrain consumer spending.

Now, raising fears of a double-dip recession, Barclay's Bank is reporting that the pool of unsold foreclosures that banks are trying to drain is swelling again. The inability of banks to get mortgage-related liabilities off their books isn't going to improve their disposition toward increasing the flow of credit.

Let's hope Home Depot's take on the economy proves more prescient than Colliers' -- or it may face the embarrassing prospect of firing folks it just hired.