The Washington Post recently ran an article discussing the cautious attitude with which businesses are still approaching hiring, even though profits appear to be on the upswing. According to the article, “Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they’ve yet to amp up hiring or make major investments — the missing ingredients for a strong economic recovery.”
Instead, it appears that companies are busy making up for the fixed assets they had to scrimp on last year and investing in things like new furniture, equipment, and so forth.
ABC News ran a similar story at the beginning of August. The Jobs Report that came out in July also showed a slow-down in hiring: in the private sector, employers produced just 71,000 new jobs in a country where 14.6 million people are looking for work. What’s going on? According to Wall Street Journal reporter Jon Hilsenrath, what’s happening here can be boiled down to one word: uncertainty.
I believe that what is going on can be explained by simply taking a look at how the human body handles stressful situations.
Those of you who know me know that I’ve been on a health kick this year. I’ve been working out diligently and watching what I eat. At 31 years old, it’s harder for me to get back into shape than it was ten years ago, but I’m working hard. Our bodies function in a very predictible manner: calories (energy) go in, energy is spent for basic functionality and any additional activity in which we participate, and then the body looks at the balance sheet at the end of the day. Excess calories are stored away, and that’s how we gain weight. To lose weight, we need to have a negative balance – more energy used than what is taken in. It’s pretty simple.
In the past, I’ve tried all kinds of weird diets – cabbage soup, grapefruit, meal replacement shakes – you name it, I’ve tried it! Without having a better understanding of calories and fuel, I thought to lose weight I simply had to restrict my caloric intake. I tried to limit my intake of calories so severely that my body often believed it was being starved. As a result, when I finally did feed it, it treated that fuel as a precious treasure and stored almost all of it as fat, because it was not sure when it would receive an adequate amount of energy again. There was uncertainty in its ability to maintain basic functionality.
For those who need a refresher course on human physiology, fat is the body’s preferred method of storage for excess fuel because it doesn’t require much to maintain. In most people, the body will break down muscle first (the best source of energy) in order to keep vital organs, like the brain, heart, and lungs, functioning. When it feels it is being starved, it will store whatever energy is being taken in as fat first, because muscle requires much more work to maintain. This is why, when you see someone who is severely restricting their caloric intake, they are often lethargic and unable to maintain a moderate level of activity for long. Their body is conserving its energy because it is unsure when it will be fueled again.
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Think of the muscles as the workforce. It’s a great analogy, actually – muscles keep our bodies active and moving. They are an expensive investment, however, because they require work to build up and maintain and atrophy relatively quickly when not used. They burn more energy than fat but are vital to our mobility. Not feeding the body properly will result in the body breaking down muscle in order to provide necessary energy to the vital organs in order to survive.
Now, think about the last 24 months. The economy has been starving businesses. Recently, we’ve seen a little burst of energy from the economy – but it’s not feeding businesses with any consistency yet. When it comes to hiring, businesses are being cautious because they’re not sure if we’re really out of the woods yet. They have felt starved for so long and, while pleased to be fed, they are unsure when the next meal is coming. So rather than investing heavily in hiring, i.e. feeding the muscles, they are conserving the energy being reintroduced into the system and storing it, i.e. investing in fixed assets and other safer investments to keep the business’s vital “organs” functioning. Until businesses no longer feel starved, they will continue to store and be extremely cautious about investing in the “muscle” again.
I wish there were a good prediction for when things will turn around completely, but at least now it’s easier to understand why hiring is still slow to pick up even with things looking brighter this year than they did last year.
It’s basic nature!