US Recesion Myths

Dont be panic with the news of Recession in US, recession is not a volcano that will erupt in a single day and will kill all of your jobs in US. I just want to clarify a few myths about recession..

Media just give more weight to recession just because of elections and wanted to back Democrats.

Why recession started??

First of all, in the eve of elections and due to slow down of militant activities the fiscal expansion and government consumption on war reduced as a result Aggregate demand decreased and sectors which depend highly on Government Buying not able to bag much more income.

End of IT Buble??
A few days back Yahoo published a news saying 63k people fired, but the fact is 63k people left jobs in last 5 years and are out of Job Market, what does this mean? Yes people who retired, people who left US, people who came back to education after a gap year are included in this 63k, Yahoo just giving this publicity to attract more clients to its Portals for Job Search and Online Education.

What really happening.
US market is not volatile, we can’t expect the same liquidity constraint that raised during 9/11due to current sub prime situation, the stock market will be volatile since Securities saw a large losses and the whole banking sector is now under threat. So, people who are trying to invest in new ventures are prone to this threat. So, if you are planning for huge Investment in India or in US or in any Open Market Countries, yes your work will be much more difficult now.

Change in Govt. can do??
No, more over, change in government will decrease government spending and if you are from Government dependent industries expect worse situation, else there will be no change in the job market.

But why Job Market is slowing down??
Indeed job market never go down completely unless situations like war or such disasters.
When Economy is booming, a few sectors will show immense growth, like Communications and IT sectors in past few years, at the first stage there is more demand for employees and less supply, this will continue for a few years and after that the companies will focus on Economic profits rather than Accounting profits and US Fed Laws won’t allow you to price more than marginal cost, so with Globilization the economy moves to other countries too and the industry will grow and Job market too, so, there is more demand for employees and more and more employees come out to join in other companies, so the natural rate of employment will be more and huge increases in salaries.
We can’t expect the growth of industry will be 9% for ever, so after 5-8 years the growth will stabilize to 2-3% or less and job fluctuations too, this doesn’t mean the job market was down completely, a few years back there are 1000 vacancies and 900 candidates, but now 100 jobs 50-150 candidates.
So, there is simultaneous decrease in jobs and job aspirants too.

I am taking about US economy only, not Indian.
If you are investor, yes the recession will hit you, if you are employee you see no difference.
Apply with right resume you will be out of unemployment pool in a week, I bet. US needs lakhs of system and network admins right now.

For every economy after a few business cycles you will experience recession and expansion, thats what happening in the world from past 200 years.

First of all, when the economy is working at full potential means no layoffs or no firing, still some rate of unemployment will be there, since people try to shift jobs, move to new locations, move to new companies so on, this is called natural rate of employment.

If demand is more, then companies give higher and higher salaries to those and recruit them, especially in construction sector, a few years back major construction boom hit Minnesota, Electricians charged 11 times more that their natural pay. After some time correction will take place, once all the houses are constructed and they wages will decline, and the media will give alot attention to that.

Exhibit 1:
http://www.iht.com/articles/2008/03/07/business/07cndecon.php (After construction over what companies do with labour? just fire the additional workers, thats what the statement below states)

The private sector lost 101,000 jobs last month, the biggest dropoff in five years. Retail stores shed 34,000 jobs, while the manufacturing sector lost 52,000 workers and construction firm payrolls shrank by 39,000 jobs.

Not even a single Job Loss in IT, Services and Finance sectors.

Exhibit 2:

United States — Unemployment Rate: 4.8% (2006 Est.) According to https://www.cia.gov/library/publications/the-world-factbook/print/us.html

Exhibit 3:

Those developments sent the unemployment rate down to 4.8 percent last month from 4.9 percent in January. “Had the 450,000 people who left the labor force last month been counted among the unemployed, the jobless rate would have been 5.1 percent instead of 4.8 percent,” Bernstein, of the Economic Policy Institute, said.

Exhibit 4:

“Our economy has added about 860,000 jobs over the last 12 months — an average of 72,000 jobs per month — and more than 8.1 million since August 2003,” the White House said.

Exhibit 5:

Natural rate of Unemployment in US is 5%.

Untill unemployment rate comes to 5%, and stabilizes there the fluctuations will continue. Unemployment rate in India is 18%, except in 1982, it never happened in history of US. Don’t divert your mind with the over hype by media, which working against Republicans. There is no problem to jobs in US, go to any job site, search for new listing in past 4 weeks,  you will know the fact. US needs lakhs of IT Employees, Microsoft alone need 1 lakh programmers, read Yesterday’s Gates statement. If situation is that much hard, US will cut H1 to 2-8k from 60,000.