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The Great American Hiring Freeze

by Raksha Arora

Recent Gallup polling* reveals that 15% of Americans believe that the most important problem facing the country today is unemployment, implying that millions of U.S. adults are worried about joblessness. More than 2 million jobs have been lost since the recession began in March 2001, and the current unemployment rate of 6% has climbed by two percentage points since President Bush took office.

A Million New Jobs?

Even as the president signed a $350 billion tax-cut package into law last week, promising to create 1 million new jobs, it is widely anticipated that these cuts might translate into increased savings or consumption, and not necessarily job creation. Our polls indicate that the average American is somewhat skeptical about the effectiveness of these tax cuts as some economists seem to be. In a May 19-21 Gallup Poll**, the plurality of Americans, 36%, said the proposed tax cuts would mostly help the economy, but 30% said they would "mostly hurt," and 23% said they would have no effect. In the same poll, 45% agreed that the tax cuts were a good idea, while 46% said they were a bad idea (see "Public Ambivalent About Tax Cuts" in Related Items). Clearly, public opinion is deeply divided on the issue.

The Economy in a Time of Recession(s)

The jobs recession continues, and with the Institute of Supply Management Index of manufacturing activity falling below the threshold level of 50 in April and May, the manufacturing sector may be in recession as well. Discussion in the media of a broader economic recession has not quite disappeared either. It is not surprising that when Gallup polls Americans on their expectations on the future of the economy, the outlook is somewhat negative. According to the May 19-21 poll, 40% of Americans believe the economy is getting better and 48% believe the economy is getting worse, translating into a net pessimistic forecast of -8%.

In December 2000, this net difference dropped below zero, presaging the recession of 2001. And despite registering a few brief spurts into positive territory in 2002, opinion has remained firmly negative since then. However, after touching -44 in March 2003 and threatening to retest the low point of -50 it reached in the 1991 recession, the net outlook has improved sizably in recent months. Even as the unemployment numbers increase, Americans are becoming less negative at least in this aspect of their economic outlook, perhaps validating Alan Greenspan's forecast of a recovery in the second half of the year.

Outlook for Corporations

Consumer spending has kept the economy going since 2000. Using either paychecks or home equity loans, the consumer has spent forth valiantly. But businesses have remained cautiously on the sidelines, initiating hiring freezes and holding back on spending decisions. In an economy in which productivity increases outstrip economic growth, and in which businesses are operating at 75% capacity utilization, fiscal or monetary stimulus can only motivate firms to spend to a certain point.

In Gallup's May Tuesday Briefing Employee Outlook Index survey of employees in for-profit companies***, we asked those employees for their perceptions of their companies' present and future financial conditions. Subtracting the percentage of negative responses from the percentage of positive responses, we find the net outlook -- which reached a low of 40 points in February -- has staged a modest recovery. While the net company financial outlook dropped off slightly from 52 in April to 48 in May, the fact remains that 64% of employees polled have a positive financial outlook for their companies, despite rising unemployment.

Bottom Line

The current 6% unemployment rate might not seem very high in a historical context. But considering underemployment, discouraged workers, and the increasing amount of time people spend looking for a new job (five months on average), it's no big surprise that so many Americans currently see joblessness as a serious problem. Gallup Polls suggest that the public is not confident that the Bush tax cuts will alleviate this situation. Yet American sentiment about the economy's future prospects and employees' outlook for the companies that they work for is improving slightly. Bottom line: This might be the beginning of a long season of cautious optimism.

*Results are based on telephone interviews with 1,005 national adults, aged 18 and older, conducted May 5-7, 2003. For results based on the total sample of national adults, one can say with 95% confidence that the margin of sampling error is ±3%.

**Results are based on telephone interviews with 1,014 national adults, aged 18 and older, conducted May 19-21, 2003. For results based on the total sample of national adults, one can say with 95% confidence that the margin of sampling error is ±3%.

***Results are based on telephone interviews with 702 adults who are employed with non-governmental, for-profit companies having five or more employees, aged 18 and older, conducted May 5-7, 2003, and May 19-21, 2003. For results based on the total sample, one can say with 95% confidence that the maximum margin of sampling error is ±4%.


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