Could green shoots see companies hiring again?

Apr 23 2009 by Nic Paton Print This Article

Economists and politicians may still be at loggerheads about whether we have reached the bottom and are now on the way or up or whether there is still a way to fall, but business leaders, it appears, are becoming increasingly confident that we may finally be over the worst of the recession.

While organisations such as the International Monetary Fund remain pessimistic about the prospects for a global recovery next year – forecasting sluggish, and by no means certain, global growth of 1.9 per cent in 2010 – others are more upbeat.

British Chancellor of the Exchequer Alistair Darling in his country's Budget yesterday predicted the UK economy would grow by 1.25 per cent next year.

Now research by consultancy Watson Wyatt has suggested that lay-offs, hiring and salaries freezes in the U.S may finally have peaked.

Similarly, fewer American consumers appear to be pessimistic about the prospects for the economy in the next 12 months – although nearly half are still pretty gloomy – and, just as importantly, more U.S chief executives say they are seeing light on the horizon.

The Watson Wyatt research of 141 companies found that nearly two thirds of firms polled were planning no further hiring freezes or restructuring activity.

Half said they also had no further plans for redundancies, and nearly nine out of 10 were not planning salary reductions and three quarters added they even had no plans for salary freezes.

Part of the reason for this, of course, was that a lot of this painful activity had already been carried out.

The survey found that the numbers already making these changes had risen sharply since February, with a quarter implementing mandatory shutdowns, a fifth bringing in a reduced working week and 17 per cent telling workers to go home on enforced leave.

While half back in February had said they would be cutting more costs over the next 12 months, in the latest poll this had declined to just one in four.

"Companies have started to move into the next stage of their cost-cutting actions, but are also looking ahead to an eventual recovery," said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt.

"There is a recognition that employers will need to be poised for a turnaround, and that continuing some cost-cutting measures such as reductions in force can put them at a disadvantage once the economy improves," she added.

The survey also found that planned merit pay increases are expected to remain at two per cent in 2009, but would increase to three per cent next year.

But the squeeze was not over completely. Most companies were continuing to restrict company travel policies and eliminate or reduce training, it found.

This growing sense of optimism was also reflected in research among chief executives by consultancy Vistage.

Following months of bleak economic outlooks, its latest "CEO confidence" poll found a growing sense that the recession had finally bottomed out and the end was in sight.

Its confidence index rose to 60.6 this quarter, up from 48.7 in the last quarter, largely because of expectations that economic conditions were improving.

From more than six out of 10 firms at the end of last year that were expecting the economy to worsen, by the end of the first quarter this year the figure had fallen to just over a fifth.

Although most of the CEOs polled did nevertheless still see further cut-backs as likely to be needed and a new strategic vision to be required to maximise their chances of making a successful recovery.

"CEOs are finding news ways of growing their businesses, and 41 per cent of them say they've adapted their leadership style to project confidence in the face of adversity," said Rafael Pastor, chairman and chief executive of Vistage International.

"The post-recession chief executive needs nimble skills and the ability to work on the business, not just in the business," he added.

Much like the Watson Wyatt poll, the Vistage research of more than 2,000 CEOs found that half of the firms surveyed had already reduced their headcount, though half also said they were still finding credit hard to access.

Seven out of 10 said they would not now be cutting salaries in the next 12 months and three quarters said they planned to maintain or even increase their total number of employees in the coming year.

And this optimism appears to be filtering through to the wider public, too. According to a latest research by the American Institute of Certified Public Accountants, while nearly half of Americans still feel pessimistic about the economic outlook for the next 12 months, this is down on the 54 per cent who were gloomy a year ago.

Conversely, the proportion that were either optimistic or very optimistic had risen to 44 per cent from 41 per cent last year.

"After months of bad news and declining economic indicators, we see some evidence that Americans are starting to look for reasons to be optimistic even if they expect the recession to continue," said Carl George, chair of the institute's National CPA Financial Literacy Commission.

"That is a good sign. We hope to see continued improvement in optimism as the substantial federal policies put in place begin to lift the economy and confidence is restored," he added.