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Should Employees Be More Confident?

by Dennis Jacobe

The September drop in the unemployment rate to 5.6% was very confusing to many on Wall Street. Numerous other economic indicators for last month -- auto sales, big chain retail sales, construction spending and earnings forecasts -- suggest that economic activity has been softening during recent weeks. Given this situation, many prognosticators had expected the unemployment rate to begin a steady increase over the next few months. Looked at in isolation, the dip in the unemployment rate would suggest that the economy continued to gain strength last month.

Employee Confidence Improves Slightly

In a similarly surprising fashion, employee confidence in the outlook for their company's financial well-being increased slightly during September, according to the Employee Outlook Index -- a joint effort of UBS and The Gallup Organization*. The Employee Outlook Index is now at 66 -- up from 58 in August. The Index was at the same level (66) as the second quarter ended in June.

Confidence in Job Security Increases Most

The Employee Outlook Index increased along all three of its dimensions. The greatest increase, however, was along the Job Security Dimension, which increased from 41 in August to 49 in September, and is now above its June level of 45. Although both the Present Company Conditions Dimension and the Future Company Conditions Dimension of the Index increased in September, neither exceeded their June levels.

Key Points

I think the recent unemployment data, as well as Gallup's own Job Security information, may be somewhat misleading right now. Many U.S. companies planned for 2002 based on an anticipated increase in business activity during the second half of the year. As a result, they did not pare down their workforces to meet existing business conditions because they wanted to be ready as business opportunities improved. On the other hand, they did not begin new hiring as they waited to see if the promised improvement in the economy would create added demand for their products.

While there has been a great deal of uncertainty in the business outlook during 2002, it is now clear to most companies that the economic slowdown will continue for the remainder of this year and may extend into early 2003. Therefore, many companies are now lowering their revenue and profit expectations for the next six months. This in turn suggests that many companies may also plan on trimming their workforces later this year and early next year.

While the potential for war with Iraq has drawn some attention away from the economy during recent weeks, business conditions have clearly deteriorated. Employees will see how their investments have been affected as they review their third quarter 401k statements. Unfortunately, they'll also begin to see the implications for their companies' financial situations and their job security as companies distribute their financial and budget information to their employees over the next couple of months.

In this regard, it is essential that companies over-communicate about their financial situations with their employees this quarter. Employees are major stakeholders in the companies they work for and deserve the same extensive disclosures that companies are now providing their investors. If economic conditions continue to weaken, as now seems likely, then those companies with the best informed and most engaged employees will be positioned to most effectively meet the challenges of 2003.

Needless to say, I think the unemployment rate will be higher and the Employee Outlook Index lower as 2002 comes to a close. And while the Fed isn't likely to cut interest rates before the election (given the new positive unemployment data), they are very likely to do so afterwards.

*Results are based on telephone interviews with 576 adults who are employed with non-governmental, for-profit companies having five or more employees, aged 18 and older, conducted Sept. 5-8, 2002, and Sept. 23-26, 2002. For results based on the total sample, one can say with 95% confidence that the maximum margin of sampling error is ±4%.


Gallup https://news.gallup.com/poll/6952/Should-Employees-More-Confident.aspx
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