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Companies are afraid to hire, even if business is improving

Economists see a vicious cycle: The economy won't improve until businesses hire, but many won't hire without consumer demand, which is weak because of the slack job market and concerns about the future.

August 14, 2011|By Alana Semuels, Los Angeles Times
  • South Coast Shingle in Long Beach is in the black for the first time in a few years, but it's not planning to add workers.
South Coast Shingle in Long Beach is in the black for the first time in a few… (Luis Sinco, Los Angeles…)

The roofing supply yard in Long Beach is rumbling with activity these days, thanks in part to a wet winter that has property owners eager to make repairs before fall. Men drive humming forklifts around the site in a cacophony of engine noise, delivering shingles and plywood to flatbed trucks for the next day's deliveries.

Supervisor Miguel Murillo pauses in the commotion and wipes his hands, his sweat-spotted shirt showing the day's toil. A year ago, things were so slow he'd often take a day off without pay. Recently he's had to work a few Saturdays.

"It's pretty busy now," Murillo said. "We could use another guy in the yard."

But this bustling workplace isn't likely to add new employees soon, said Ross Riddle, the president of the small family business. Though South Coast Shingle Co. is in the black for the first time in a few years, Riddle is fearful of hiring more people in what he believes is a shaky economy.

"I hear politicians say that businesses have money and they should be hiring," said Riddle, a tall, distinguished-looking man who might be cast as the president if he were an actor. "But if you don't have the demand, you don't hire the people."

Business owners across the country are thinking the same way. Although the recession technically ended in June 2009, unemployment remains at 9.1% nationally and 11.8% in California.

That high unemployment rate is one of the key factors underlying the recent turmoil on Wall Street, which many believe is largely a reflection of the uncertain state of the economy.

Economists say the nation is stuck in a Catch-22 scenario: The economy won't improve until businesses hire, but many won't hire without consumer demand, which is weak because of the current state of the job market and concerns about the future.

"It's sort of this chicken-and-egg problem," said Gregory Daco, principal economist of IHS Global Insight. "We are at a point where companies will only hire individuals if they absolutely have to. They'd rather ask someone to work a little more in this environment when people aren't spending."

Money itself isn't the problem. As of March 31, the blue-chip companies in the Standard & Poor's 500 index were sitting on nearly $1 trillion in cash, a record sum.

"For big companies, we've seen relatively healthy profits. These companies are looking to reach certain targets, and one way to reach these targets is to cut down on labor costs," Daco said.

At South Coast Shingle, Riddle says he'd like to hire — but he can't forget the listless days of 2009, when the bursting of the housing bubble nearly brought business to a halt.

During those dark days, his sales guys would spend hours making cold calls or studying Spanish from a Rosetta Stone kit. He'd have workers sweep the yard one, two, three times a day, wash the trucks, paint buildings in the company's 3-acre facility, anything to keep them busy.

Through the recession, Riddle tried to keep up his regular schedule: golf on Thursdays, dinner Wednesday nights with his 28-year old daughter. He paid for her wedding as he saw his company dip into the red.

"It was the worst I've ever seen," said Riddle, who has worked for the company since 1968, when he was still in college. Riddle's wife is a real estate agent and the family felt the housing downturn in its pockets when a vacation home in La Quinta plummeted in value.

But from the looks of things last week, South Coast Shingle is on the way to recovery.

The five men behind the counter are swamped attending to contractors, and the throaty ring of incoming phone calls is constant over the rumbling of their voices. Customers wait patiently for help at the counter or browse through aisles of spades and paint cans below the shingle samples of charcoal, slate and hickory.

Riddle is pleased with the extra business, but he says it's not clear how long it will last. After last season's torrential rains in Southern California, property owners need to fix their roofs to be ready for the next season. A recent uptick in commercial building has helped. But a dry year could spell trouble, and any more bad economic news could spook consumers.

As he walks through the store, one customer backs away from the counter after negotiating the price of bricks with a salesman. Customers are looking for good deals, but they're hard to find as the price of supplies goes higher.

A sign on the counter announces that the prices of one company's steep-slope roofing products are going up 7% to 9% this year.

"I want to do the job next month, probably — maybe," the customer says, embodying the uncertainty many consumers feel.

Riddle is also wary. Having ridden out the housing downturn, he seems as eager to pinch pennies as a grandmother who suffered through the Great Depression. He's decided to put off buying new trucks and forklifts this year, although he usually buys one of each annually.

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