"Why Aren't Companies Hiring?" Part II

The economic weakness that accelerated in the latter months of 2008 and into 2009 played out in a very "tricky" fashion.

Very few mainstream economists foresaw what would happen. A testament to the complexity of the situation as 2008 progressed was the business shows airing arguments during the summer as to whether the economy was even in a recession.

Needless to say, that argument was answered by the 4th quarter. The list of rather unbelievable economic occurrences in 2008, and into 2009, is very extensive.

Given the "trickiness" in which the economic weakness has played out, one question that may be asked is "How well have businesses reacted?" As well, another major question becomes, "Given how businesses have reacted so far, how are they positioned for the future?"

Both of these questions are very difficult to answer. With regard to the first, there really is no established "scorecard" with which to grade businesses' response to the events of 2008 and 2009. As aforementioned, the way the economic weakness played out was "tricky" and certainly highly unexpected. While one may argue, in hindsight, that corporate forecasting might have been better, or any number of corporate actions, from cash management to inventory control, could have been more effective, those arguments certainly make more sense "after the fact." Sure, things may have been handled better, but most businesses won't, and can't, be effectively run if they seek to plan for contingencies that, at the time, seem very unlikely, if not unimaginable.

Perhaps even more important is the second question, "Given how businesses have reacted so far, how are they positioned for the future?" If one believes the current consensus among professional economists, that the worst (as far as economic weakness) is behind us, and that a steady, if not weak, economic recovery will continue through 2010, then the answer appears to be that businesses, as a whole, will continue to face a challenging environment, but in most cases will be able to survive.

However, if the economy defies consensus expecations, and materially weakens (a view I hold, as previously mentioned in this blog), it is much harder to generalize how adversely businesses would be impacted.

In the next post, I will discuss some issues that bear significance should this more adverse economic scenario occur.

Part III to follow...

SPX at 977.68 as this post is written