Recession is over, but hiring comes later

The recession just ended, but you can't expect companies to begin bringing employees back just yet.

By Jim Cramer Apr 30, 2010 7:58AM
Jim Cramer

We want badly to relate the end of a recession to hiring, but unfortunately for the millions of people who are unemployed, it doesn't work that way.


That disconnect is particularly problematic in this recession, with a proximate cause of a total shutdown of the credit markets. Many companies, in order to assure that they had access to the credit markets, had to fire people to show they had the cash flow necessary to get loans.


You can't expect companies, even within a year after firing people, to bring them back on. In fact, the only companies I have seen take that action are companies that furloughed people specifically to bring them back when things got better, a policy that was not widespread.


In other words, you won't see the hiring until well after the recession is over.


So, what has made me so certain that the recession ended a few months ago? I look at a host of indicators, including overtime, inventories and credit availability, all of which coalesced to call a bottom at the beginning of the year.


Each one has its own powerful signal. Right before the economy switches from contraction to expansion companies begin to stretch their workforces. They don't want to start hiring for fear that the orders they are starting to see are simple re-stockings.

In other words, they are concerned that their customers have so little left on their shelves or showrooms that they just have to place orders. You don't want to rehire to meet those orders because you may have to fire again once the re-stocking is finished.


That's why I monitor inventories so closely because, like the managers of the suppliers, I don't want to be fooled either.

For example, one of the great debates that raged at the end of the year was whether the semiconductor companies, which had seen a pick-up in orders, were simply addressing these restocking needs. Once it was clear they weren't, and that business had gotten stronger and stayed stronger, you recognized that the end of the recession had neared.


To monitor inventory, I listen to the conference calls of United Parcel Service (UPS), Federal Express (FDX) and the railroads -- and I look at aggregate railcar loadings. They are about as reliable as you can get, and late last year they stopped decreasing and then started creeping back up, a classic sign of the end of a recession. Now they are roaring in double-digits, confirmation of the recession's end.


One other excellent report, the ISM monthly purchasing managers' numbers also aided in calling the bottom in the economy in almost real time, again because it measures the supply chain, all part of the inventory puzzle.


Other good indicators that the recovery is accelerating include state surveys of business activity such as the Maryland Survey of Business Activity and the Carolinas Survey of Business Activity.


Typically, I would not be as concerned with credit availability as an indicator but this time, given that this recession revolved around a dramatic reduction in credit, it would be a mistake not to key in on that.


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Given the losses that banks had and the contraction in the sheer number of lenders, you had to use two sources to obtain this information: Federal Reserve reports ranging from the monthly Beige Book to the individual email backgrounders put out by the regional banks and the conference calls from the big national and regional banks.


The Federal Reserve did much to ensure that there was credit flowing throughout this period, but it was only when the losses peaked in the final quarter of last year, that you recognized the bottom was nigh.


I know, hardly a science. More of a pastiche that gives you enough confidence to say, "It's over." And that's just what the mosaic I work with did in the first quarter of 2010.


At the time of publication, Cramer was long UPS.



Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


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