WASHINGTON: U.S. employers who have cut jobs over the past year are in no hurry to start hiring again just because the recession is tapering off.
From a North Carolina machine maker to an Oregon heating-and-cooling company, small business owners say they need to see several months of rising sales before they start adding staff.
Because labor is the biggest expense for most companies, that kind of caution is typical at the end of recessions.
After the last one, in 2001, unemployment kept rising and didn't peak until June 2003 - 19 months into the economic recovery.
This time around, some economists say unemployment may not return to healthy levels until 2013.
Companies have been slashing workers' hours, squeezing more work out of the employees who are left and relying on cheaper temporary staffers to fill the gaps.
In North Carolina, a company called Power Curbers, which makes barriers and curbs for subdivision, is finally breaking even after shedding 35 percent of its staff.
The owner, Dyke Messinger, plans no more cuts.
Yet he is wary of adding to the staff, which now numbers about 80. First he wants to see new orders.
"When you look out and see that the country has stabilized, that gives you confidence that you can hold on to everybody that you've got," he said.
"But we will be very hesitant to hire until business turns up."
Employers wiped out 247,000 jobs in July, far fewer than any other month this year.
The economy shrank in the second quarter at a much slower pace.
And businesses are seeing real results of a warming economy.
But that doesn't translate into job creation.
William Dunkelberg, chief economist for the National Federation of Independent Business, said a survey of small businesses found only about 7 percent of them added to their work forces in the second quarter of the year, while 24 percent cut jobs.
At the Three Monkeys restaurant and bar in St. Louis, customers show up more often for the Sunday brunch buffet and for drink specials.
It's a lot better than last winter, when people were canceling parties and staying home.
Still, it would take about 25 percent more business for owner Stephanie Demma to consider adding to her staff of 40.
Otherwise, higher payroll expenses would cut too deeply into profits.
"We've been doing well, but then again there haven't been any big gains," Demma said.
"We're staying steady."
Hiring should start again late next year, said Sophia Koropeckyj, managing director for Moody's Economy.com.
It's got a long way to go: The recession has eliminated 6.7 million jobs, and 14.5 million workers are unemployed and unable to find work.
When the economic crisis struck last fall, many employers steeled themselves for the worst, laying off workers, cutting hours, imposing unpaid furloughs and cutting benefits.
Now that economy is beginning to recover, some companies will find there are cheaper alternatives to bringing in new full-time workers.
For example, they can increase the hours worked by the employees they already have.
Right now, the average workweek is 33.1 hours, near a record low.
More significantly, businesses in this recession have managed to produce just as much with fewer workers.
From April through June, productivity surged by the largest amount in nearly six years, the government said Tuesday.
When business are producing as much or more with fewer people, that makes the job market even more dismal for the unemployed.
"There's a lot of wiggle room before (companies) actually need to hire a new worker," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, an industry research group.
George Brown has been forced to cut back on the hours of the maid at the two guest houses he runs on Chicago's North Side, where occupancy is down 10 percent.
She now works 25 hours a week instead of 40.
Brown said he will not raise her hours until his lost revenue comes back. "I'm happy with the progress" of the national economy, he said.
"But I don't think it's affecting my business yet."
Once the economy starts adding jobs again, employers who depend on battered industries like housing will probably be among the holdouts.
Dan Tyree, owner of Second Chance Auto Sales of St. Louis, doesn't expect to hire anytime soon.
Tyree said he'd have to double his revenue for several months before he'd consider adding a salesperson.
"Everyone's afraid to spend even $1,200 on a scooter," said Tyree, who laid off a salesman there recently and had to fill in on the sales floor himself.
And a month or two of hopeful economic news doesn't impress Teresa Penhall, who runs a small heating-and-air company called Absolute Comfort in Klamath Falls, Oregon.
The housing collapse forced her to lay off two workers. Now, it's just Penhall and her husband.
The workload would have to double before the company hires again, Penhall said. But she doesn't see much demand for big work these days - just modest repair jobs on old air conditioners.
"People are calling us - not by choice but because they are hot," she said.
Meanwhile a recurrence of investors' anxiety about the U.S. economy gave Wall Street its biggest loss in five weeks.
The major indexes fell 1 percent Tuesday as investors worried that the market's steep gains in the past month could unravel if the economy doesn't show more signs of strengthening.
Warnings about the health of banks and uneasiness ahead of the Federal Reserve's economic statement Wednesday led investors to dump financial stocks and wade into defensive areas like consumer staples companies and government debt.
Meanwhile, a record 10th straight monthly drop in wholesale inventories brought a fresh reminder that a recovery in the economy is likely to be gradual.
But many analysts said investors weren't panicking Tuesday.
They were taking a much-needed pause following a rally that seemed to be going at breakneck speed.
The Standard & Poor's 500 index had reached at its highest level since last fall, rising 15 percent in just four weeks and 49 percent from a 12-year low in early March.
"This sort of give-and-take is quite healthy," said Erik Davidson, managing director of investments at Wells Fargo Bank in Carmel, California.
"You're up 50 percent in five months. That's 10 percent a month. In quote-unquote normal markets that's five years worth of returns."
Moreover, traders often become jittery when the Fed policymakers meet to discuss interest rates.
It is widely expected that the central bank will hold interest rates at their historic low of essentially zero, but investors are waiting to see what the Fed has to say about the economy when the meeting concludes Wednesday.
"It's pretty clear that a lot of people are pulling back any bets pending what is going to happen with the Fed," said Max Bublitz, chief strategist at SCM Advisors in San Francisco.
There were some troubling developments during the day, however.
Downbeat comments from analysts about banks weighed on the market.
Analyst Richard Bove of Rochdale Securities predicted that bank earnings won't improve for the second half of the year and that many companies will post losses.
"It just takes the euphoria feelings off the table," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove's comments and recent optimism among investors.
With many traders on vacation, volume was light, which tends to skew price moves.
The Dow Jones industrial average fell 96.50, or 1 percent, to 9,241.45.
It had been down as much as 121 points.
It was the biggest drop since July 7, when the index lost 161 points.
The Dow slipped 32 points Monday.
The broader S&P 500 index also had its worst day since July 7, falling 12.75, or 1.3 percent, to 994.35.
The Nasdaq composite index fell 22.51, or 1.1 percent, to 1,969.73, while the Russell 2000 index of smaller companies fell 9.75, or 1.7 percent, to 562.12.
About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion traded Monday.
The Chicago Board Options Exchange's Volatility Index spiked in a sign of investors' nervousness.
The VIX, also known as the market's fear index, rose 4.1 percent to 26.01, its highest level in a month. It is down 35 percent in 2009 and its historical average is 18-20.
It reached a record 89.5 in October at the height of the financial crisis.
Bond prices jumped as stocks retreated.
The gains followed a solid showing at the first of the week's three auctions for a record $75 billion in debt.
Prices often fall when the government introduces supply to the market. The sale Tuesday was for $37 billion in three-year notes and the government will auction $23 billion in 10-year notes Wednesday.
Investors watching for a drop in buyers because that could force the government to increase the interest it pays, which would drive up borrowing costs for consumers and slow an economic recovery.
The yield on the three-year note, which moves opposite its price, fell to 1.72 percent from 1.78 percent late Monday.
The yield on the benchmark 10-year Treasury note fell to 3.67 percent from 3.78 percent.
Among banks, Citigroup Inc. fell 25 cents, or 6.4 percent, to $3.69. Wells Fargo & Co. slid $1.75, or 6.1 percent, to $26.89.
The KBW Bank Index, which tracks 24 of the largest U.S. banks, fell 4.4 percent.
Analyst downgrades made traders cautious about the overall economy.
Bond insurer MBIA Inc. tumbled 78 cents, or 12.6 percent, to $5.39 after J.P. Morgan Securities cut its rating on the stock over concerns the company could face steep losses from bad debt.
Yum Brands Inc. fell after an analyst at UBS lowered his rating on the company because of concerns about sales.
The parent of the Pizza Hut, Taco Bell and KFC fast-food chains fell $1.40, or 3.8 percent, to $35.13.
The day's economic readings were mixed.
The Commerce Department said businesses cut inventories at the wholesale level for a record 10th consecutive month in June.
The drop has contributed to the recession.
In one bright spot, sales rose 0.4 percent for a second straight month, the first back-to-back increases in a year.
The Labor Department said productivity - which measures the amount of output per hour of work - grew 6.4 percent during the second quarter.
Economists polled by Thomson Reuters were expecting growth of 5.3 percent. - AP
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