Labor mobility issues makes recession unique

Editor’s note: Roby Brock, with our content partner Talk Business, wrote this report. He can be reached at [email protected]

French Hill, CEO of Delta Trust and Bank, offered insight on the latest Arkansas Consumer Confidence Report released Monday (June 13), saying circumstances surrounding housing have stifled job creation because of a lack of labor mobility.

In the latest Arkansas Consumer Confidence Report, only 3% of the 554 Arkansans surveyed thought national business conditions were good, while 80% said they were bad and 17% said they were normal.

At the state level, just 9% saw current business conditions as good versus 51% who said they were bad, and 40% who viewed them as normal. Attitudes toward job opportunities were equally as dire with just 9% describing jobs as plentiful and only 13% expecting better prospects six months from now.

Hill said that this recession is unique in that it was led by the housing downfall. In addition to the lack of mobility tied to housing issues, higher gas and energy prices have also compounded problems leading to a low rate of confidence in economic conditions.

The following is a Q&A transcript of Hill’s comments on the latest report.

Q: Our latest Arkansas Consumer Confidence Report, which paints a pretty pessimistic picture. What would you write as the headline for this latest survey?

French Hill: Gas prices affect consumer behavior.

Q: What do you think this does to consumers psychologically, when they’re dealing with these higher gas prices — a $1 higher than a year ago? Does it really register with them or is it something that creeps into their lives?

Hill: I think it hits pretty hard. It’s like a tax, a consumer tax straight away on American families. And when you look at earnings reports in May for the big retailers like Lowe’s and Wal-Mart, what you saw is that people were consolidating trips to Wal-Mart because of higher gas prices. Lowe’s reported lower earnings directly because of that dollar extra in gas prices this spring over last spring.

Q: Another big change in this survey is when we look at predictions of where future spending might go over the next 6 months. A quarter ago 41% said they planned to spend more in the next 6 months. Now, just 17% say they’ll spend more money. Why this big mood swing?

Hill: I think people’s budgets are under real pressure and they just don’t have the extra money to think in the future they’re going to be able to spend more due to higher prices for food. You see the inflation rate under control when you back out food and energy, but the average family is completely affected by their food and energy bill.

My judgment is that those higher costs are causing people to want to save more. They’re pessimistic about the jobs picture. They’re pessimistic about the economy and they’re hunkered down. But the direct effect is higher costs at the grocery store and at the gas pump.

Q: We also saw in this latest report that job conditions, job prospects remain pretty weak. Is it really that bad out there, do you think?

Hill: It’s ironic that in the week that these poll results came together, the Conference Board also announced the highest online job ad index since before the recession with over 4.5 million online job postings around the country. The job market has improved. We’ve created jobs. The unemployment rate, while it went up in May, has been trending and bouncing in a better range, a little improvement, but people aren’t feeling it. In my view the reason for that is lack of labor mobility.

If you’re in foreclosure or you’ve lost the home equity that you had in your home, then you’re going to be reluctant to move to another state that has better job prospects. We’ve never had a recession of this magnitude, ever, that’s been led by a housing collapse. Housing led us into this recession and so it certainly won’t lead us out and that is really creating a crimp in American families’ ability to move from a weak state like Nevada or California to Texas or Arkansas to find a job. Housing is a big boat anchor on that labor mobility.

This recession was nationwide, was driven by a sinking in personal residence prices, and that is what’s really hurt us. It could be 2 or 3 more years before we see any strong recovery in housing construction and housing sales and all the things that go with it.

Q: What do you think it’s going to take to change consumer attitudes? When you look at this latest report, you’ve got a very pessimistic consumer. It’s a lot deeper than just getting in a different frame of mind, don’t you think?

Hill: We saw no improvement whatsoever from the spring confidence survey to this latest one either in Arkansas or nationally about the state of the economy or the mood. The survey indicated that only 3% thought national business conditions were good. That’s very troubling considering that the American capitalist system is built on opportunity, optimism, and as John Maynard Keynes called it: the "animal spirit" of the American businessperson who gets out there every day and makes something happen.

I think that pessimism is triggered by lack of confidence in the federal government on regulatory policy, on policy to incent investment and job creation, and the cost of job creation.

Q: Let’s look at this last quarter. Corporate profitability pretty strong; we’re not going in a negative direction on jobs; gross domestic product is on the rise, according to latest figures. Why are we not seeing better economic attitudes? We don’t seem to be poised to fall off a cliff statistically, but psychologically it seems like we’re about to?

Hill: I do not believe that we will have a double-dip recession. I do not believe the economy is going to fall off a cliff. But we don’t have that attitudinal adjustment that is even mirroring some of the good things happening in the economy.

We’ve had increasing orders, but they’ve flattened out. We’ve had a robust increase in the last couple of years in manufactured goods and exports. They have flattened out a bit. Just because a statistic flattens out does not mean that we’re going to go into a double-dip. The sell-off in the stock markets in the last couple of weeks certainly is a bearish indicator from a leading economic indicator point of view, and that’s contributed to this malaise view that we’re picking up in the survey. People know that the stock market is an early warning canary of future conditions in the economy.