And, the government is doing just that.

Gallup’s Job Creation Index for April shows that the federal government was the primary engine for new hiring during the month. The private sector made a very modest contribution, and state and local governments continue to aggressively lay people off as their taxes bases go through rapid contractions. This process at the local level is not over. Property taxes are a great part of the money brought in by cities and municipalities. Real estate prices are still down over 30% from their peaks three-years ago. Whatever money comes from local income taxes has been eroded by high unemployment.

Gallup reports that

“The overall Index value for American workers in April tilts positive, with 27% of workers saying their places of employment are hiring, and 22% saying their employers are letting people go — resulting in an overall +5 Job Creation Index.”

The most noteworthy data may be the extent to which businesses are still firing people. There is a popular assumption that lay-offs are largely lower and that employers, while not hiring, are in a steady state of worker retention. Productivity has gone up so much in the last two quarters that the amount of work that any one person can do has probably reached a point past which is cannot reasonably go. The fact that over one out of five enterprises, private and public, are still letting workers go is a sign the aftershocks of the recession are still powerful.

The federal government is trying to make up for the deficit in the private and local sectors. Some portion of the $787 billion stimulus package went to programs that are strictly federal. Washington has turned that into a hiring binge.

:By almost a 2-to-1 margin, federal employees say their employer is hiring rather than firing, giving the federal government a relatively robust +18 Job Creation Index for April.”

Federal job creation, some of it due to the Census, is by its nature temporary. The Administration is pushing for sharp deficit reductions as a way to get out in front of what is universally considered the dangerous problem of rising national indebtedness. Discretionary federal spending will have to be a major target lowering deficit spending. The government has, in essence, committed itself to being a smaller employer.

Employment will have to grow quickly in the federal and private parts of the economy to help offset the plunge in local and state government jobs. Gallup’s data shows that hiring has gone up 14% according to respondents who work for state governments, while 42% say their employers are reducing workforce size. The local numbers are not much better with the ratio of 16% to 42%

The Gallup data is a sign that the belief the number of unemployed or underemployed people in the US will drop by any meaningful extent is wrong. The government’s stimulus packages have helped create jobs at the federal level. Stimulus dollars have had very little effect on the private sector at all, and aid to the states is not being used for hiring.

Unemployment rates in the US are, whatever small hope monthly data may give, frozen near the top of a range that peaks at 10%.

Douglas A. McIntyre

The initial statement from the report is

“The global recovery is proceeding better than expected but at varying speeds—tepidly in many advanced economies and solidly in most emerging and developing economies. World growth is now expected to be 4¼ percent. Among the advanced economies, the United States is off to a better start than Europe and Japan. Among emerging and developing economies, emerging Asia is leading the recovery, while many emerging European and some Commonwealth of Independent States economies are lagging behind. This multispeed recovery is expected to continue.”

Shortly after that opening, the agency says “but stability is not yet assured.” In other words, a little more than a tap on the breaks could bring the progress to a halt.

The World Economic Outlook echoes the analysis that most global forecasts written in the last quarter have made. The credit crisis is probably over. Regulation can prevent future disasters if governments will only create new restrictions on banking activities. Regulators can reign in bank risk by applying taxes to financial firms as a way to raise money as dry powder for future catastrophes. If any banks do eventually do fail, and the pool of capital created by the levies protects taxpayer money that was used at great risk in the last bailout.

The IMF writes “Policymakers must strike the right balance between promoting the safety of the financial system and keeping it innovative and efficient.”

The other puzzle that governments must put together is that sovereign debt is becoming too high. This is not just among the weak economies like Greece. It has recently come to include the US and UK which have rising national debts in comparison to GDP. The aging populations of these nations will put a stain on the future tax base. Unemployment has undermined that size of that tax base and will do so for some time.

The IMF writes “The key task ahead is to reduce sovereign vulnerabilities. In many advanced economies, there is a pressing need to design and communicate credible medium-term fiscal consolidation strategies. These should include clear time frames to bring down gross debt-to-GDP ratios over the medium term as well as contingency measures if the deterioration in public finances is greater than expected.”

There is, of course, no contingency plan if sovereign debt becomes unmanageable in uneven capital markets. Nations can say they will raise taxes, which is sometimes regressive, or cut entitlements, which is often impossible.

That leaves the most difficult puzzle of all. The economic expansion relies to a very large extent on the hundreds of billion of dollars nations have invested in stimulus packages,  the largest of which were the $787 billion created in the US and $585 billion approved by the Chinese government. The IMF is aware of the fact that if this stimulus is withdrawn too soon, improvements to GDP could falter. But, the stimulus benefits come with the great risk of extraordinary future deficits. The most important threat to a long-term recovery is unemployment, and governments must be prepared to handle the problem even if there is a large cost to the solutions.

The IMF writes: “To limit damage to the labor market, macroeconomic policies need tobe appropriately supportive of the recovery where possible. At the same time, policies need to foster wage flexibility and provide adequate support for the jobless.”

In summary,  it is expensive to fix the world, particularly if the work is being done with money the world does not have.

Douglas A. McIntyre

The survey of 2,315 respondents showed that “More than half (55 percent) of these employees said their company made changes or reduced compensation in the past six months, up from 50 percent in the fourth quarter, and 17 percent reported their company restructured their job or made their position redundant, up from 10 percent last quarter.”

Anxiety about job security caused about three-quarters of respondents to say that they would take a pay cut to keep working in their current positions.The poll shows the extent to which companies have workers by their throats. Productivity in the U.S. rose by 7.9% in the fourth quarter of last year, a sign that bosses are willing to pressure their work forces for longer hours and probably harder ones. Workers have nearly no leverage to get improved salaries. Recent unemployment numbers for March showed that 8 percent of the work force is comprised of people who would like full-time jobs but have only part-time one.

There continues to be a ripple of despair that moves among the workers at firms where management can reasonably hint that it has not cut the last job possible and that one more “restructuring” may be on the way. Personal income in the US will not rebound under these circumstances which means that consumer spending will remain historically low.

People who live in deep fear of losing their jobs are saving what they can and not spending a dime

Douglas A. McIntyre

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The Fannie Mae (FNM) and Freddie Mac (FRE) rescue pushed the market higher and may do so for a few days. In Asia, they know better. The rally never made it beyond the first 24 hours. Markets turned down in Day Two.

The overwhelming evidence is that almost no one benefited from the government taking over the agencies. The rest of the economy is in the toilet. A lot of data has come out in the last day underscoring that point.

The well-regarded Manpower Employment Outlook Survey’s look at corporate hiring plans found that a net 9% of firms expect to hire in the fourth quarter, down from 12% in the previous quarter, and 18% for the fourth quarter a year ago. According to MarketWatch, this is the longest string of quarterly declines in two decades.

A quick glance over at the Forrester study of IT spending found that 43% of companies have cut IT spending this year. How can companies like Oracle (ORCL), Microsoft (MSFT), and IBM (IBM) have strong earnings into next year with that kind of trend?

A Bloomberg News survey of 39 economists showed that they believe pending US home sales dropped again in July.

All three pieces of data are less than 24 hours old.

The market really did not rally. A few stocks did. GE (GE) sits at $29, still relatively near multi-year lows. Boeing (BA) faces a strike which could go on for months. That will hurt earnings and employment at scores of its suppliers. Boeing’s shares could clearly drop. Ford (F) is barely off a 20-year low. The same could be said of Microsoft (MSFT).

If the stock prices of Washington Mutual (WM) and Lehman (LEH) tell any tale it is that they will have to be rescued or cease to exist as independent companies.

Most of the seminal stocks in key industries are still well down and have little prospect of recovery.

If a recession is defined by the breadth of its damage, this is already a powerful one.

Douglas A. McIntyre

It is hedging with good comments, though.  The expected revenue increase of approximately 28% for the first quarter reflects continued rapid revenue growth in the Company’s International Careers segment, and reduced growth rates in the North America Careers and Internet Advertising & Fees businesses.  It continues to expect its financial results for the year 2007 to be within the ranges provided in the Business Outlook provided on February 1, 2007. The Company continues to achieve greater operating efficiencies and manage costs tightly, while also funding important growth initiatives within the overall strategic growth plan. Monster Worldwide maintains a positive view toward what it believes are significant growth opportunities within the global online recruitment and Internet advertising markets.

The main punishment is coming from this still being deemed as a hi-beta name in a cyclical sector that is deemed "at-risk" whenever the economy is softening.  After a drop like this, there will probably be many analyst calls.  Other employment related stocks are down as well: Korn Ferry (KFY) -1% at $23.07; Labor Ready (LRW) -4% at $18.30 was cut at Goldman Sachs today; Robert Half (RHI) -3% at $36.20; ManPower (MAN) -2.5% at $73.20; Administaff (ASF) -1% at $35.21.

Jon C. Ogg
April 4, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.