As you have heard, employment continued to contract once again in October with few exceptions. Temporary help jobs accounted for 33,000 of the 240,000 job losses last month and have fallen for most of the year. We receive a daily barrage of bad economic news from negative corporate earnings and housing sales to higher prices at the grocery store. When will the economy start to get better and is that at all possible over the next year or two?

Sure it’s possible. And the answer has less to do with politicians and more to with the free market place and small businesses like independent staffing companies.

Stimulus

We hear a lot of talk about what the politicians would like to do with stimulating the economy. This is fine but a $500 rebate check only goes so far and does not have any long-term growth benefits associated with it.

Now that the economy has slowed, the free market has begun to stimulate the economy. Some stimulants are easier to see than others. An obvious one is the price of gasoline. Check out the price of gas the next time you fill up. It has fallen about 40% from its high and poised to fall further over the next few months. If the decline in price holds, this should positively impact on our economy over the next year.

For example, if the price of gasoline is $2 cheaper than it was and the casual driver uses 10 gallons of gas per week, the savings is a recurring $20 per week or $1,040 a year. The savings increase dramatically for all businesses from staffing companies that drive to visit their customers regularly to trucking companies, airlines etc. This savings amounts to more money available for individuals and businesses to spend, invest and create jobs that grow the economy.

Furthermore, a reduction in the price of a gallon of gas can create an added correction in price on other household items. For instance, the price of corn was up sharply over the past year. A big reason for the rise is that corn is used to produce ethanol instead of being used in processed food. Corn is a key ingredient in many food products. Additionally, many farmers planted corn instead of other crops which caused an increase in those prices as well. Based on current data the price of food should start to come down over the next year which will again leave individuals and businesses with more money.

The free market is also correcting the housing crisis. The falling price of housing is painful in the short-run. However, that has to happen in order to cure the current imbalance of supply and demand. Falling prices are causing builders to build less housing (reduce supply) and will eventually stimulate the consumer to buy (increase demand). Evidence of this may be beginning to transpire. The number of available units has gone down over the past couple of months. Hopefully, this is the start of a trend that will stabilize the housing market.

A prolonged period of falling prices is not good for the economy either. The above mentioned scenarios are really pricing corrections, due to the fact that price of oil, food and housing were rose very quickly causing them to be over-inflated.

Credit Market

This is probably the most difficult area to address. Basically, the banking industry has suffered big losses over the past couple of years due to the housing crisis. This has caused the banks to become very skeptical about lending money which is spilling over to other types of lending as well.

Those of you that use bank financing to run your staffing company may have experienced this firsthand. Numerous banks have stopped lending to staffing companies, reduced lines of credit and/or put very restrictive rules in place. The credit problem gets bigger if their customers slowed payment on labor invoices because they are experiencing the same financing problems. Less credit is the last thing your business needs. Luckily, there are alternative financing sources that staffing company’s can turn to that understand the business and are not afraid to lend money.

In general, most banks have probably over reacted to the current problem in the short term. They have money to lend. Eventually, the free market will force them to start responsible lending again. They can only make money by lending it.

What’s Next

Again the economic numbers that have been recently reported are negative. However, these numbers mostly reflect what has happened in the past. Employment for example is a lagging indicator, not a precursor of what’s to come. Layoff’s typically happen after the economy slows. Most of you reading this article know how difficult it is to terminate positions.

Stay Positive

In spite of the bad news, placement opportunities still exist. The availability of qualified candidates has increased and certain industries such as medical and IT are still adding workers. And when the economy improves, and it will, temporary help employees are the first ones to go back to work.

A positive attitude comes from the top. Sales people, recruiters and office support staff mimic the leaders of the organization. If the leaders are negative about the business climate, then your front line people will use it as an excuse for missed business opportunities which can be disastrous for your business.

Buck-up! Over the past 27 years, we at Damian have seen many new start-ups, small and medium staffing companies prosper during difficult economic times if they have the right business savvy, financing and management tools, positive attitude and drive to succeed.

By: Nick Andriacchi

Author’s Note

There are many, many components to our economy. I chose three (oil, corn and housing) commodity items as examples of how the free market corrects itself that would be familiar with most readers.