Sine Emptore Nullum Negotium and few new jobs

For decades, visitors to the office of the dean in the W. P. Carey School of Business at Arizona State University have asked about the Latin words Sine Emptore Nullum Negotium inscribed on a brass plaque on the door. Those who inquired were told the translation from Latin is “Without a customer there is no business.” Marketing faculty interpreted the plaque as a reminder of the importance of advertising and customer service. Finance faculty think it emphasizes the importance of available credit and the dynamism of a fractional reserve banking system. The economists used to ignore the sign completely. But now they see it as a capsule description of why the current economy is nearly stagnant: consumer spending is in low gear, and that is affecting business hiring and keeping the unemployment rate alarmingly high.

For decades, visitors to the office of the dean in the W. P. Carey School of Business at Arizona State University have asked about the Latin words Sine Emptore Nullum Negotium inscribed on a brass plaque on the door. Those who inquired were told the translation from Latin is “Without a customer there is no business.”

Marketing faculty interpreted the plaque as a reminder of the importance of advertising and customer service. Finance faculty think it emphasizes the importance of available credit and the dynamism of a fractional reserve banking system.

The economists used to ignore the sign completely. But now they see it as a capsule description of why the current economy is nearly stagnant: consumer spending is in low gear, and that is affecting business hiring and keeping the unemployment rate alarmingly high.

Weak employment report

The June employment report from the Bureau of Labor Statistics was far weaker than expected, yielding only 18,000 new payroll jobs in June. The May growth was revised downward to 25,000. Analysts had expected a much better showing by the economy, especially since jobs increased by an average of 215,000 in the previous three months.

To be sure, labor markets are not in uniform collapse. More than 100,000 new jobs were added in June (seasonally adjusted) over a range of industries, paced by the leisure and hospitality sector (up 34,000) and professional and business services (24,000). Other notable gains were in durable goods manufacturing (15,000), health care (13,000), wholesale and retail trade (12,000), mining (8,000) and trucking (4,000).

But these gains were offset by huge losses in government jobs (-39,000), along with losses in private education (-17,000), finance (-15,000), non-durable manufacturing (-9,000), and construction (-9,000). Temporary employment fell by 12,000 jobs in June.

This is particularly troubling to economy-watchers, since temporary jobs often presage increases in permanent positions. Temporary jobs have decreased for three consecutive months, the first time this has occurred since the bad-old-days of 2009.

Cautious consumers affect hiring

Searching for a cause for labor market lethargy, many would put the cautious consumer at the top of the list. Consumer spending grew by only 2.2 percent in the first quarter, and forecasters expect growth to be below 2.0 percent (perhaps well below) in Q2. Since the consumer accounts for 70 percent of spending in the U.S. economy, it is little wonder that businesses are wary of hiring in this environment.

The reasons for consumer reluctance to spend are all-too-familiar. Consumers are buffeted by high unemployment rates, falling home prices, increases in prices for basics such as food and gasoline, and a growing belief that forthcoming fixes to the situation are unlikely anytime soon.

The Consumer Confidence Index fell in June for the second month in a row. Optimism was absent among consumers surveyed, with a meager 16.4 percent expecting business conditions to improve over the next six months. The next release by the Conference Board (scheduled for July 26) is expected to bring yet another decline in the index.

Outlook

Analysts are still hanging on to the hope for improvement in the economy in the second half. Many forecasters are projecting growth in output (as measured by Gross Domestic Product) of 3.0 percent or better. To achieve these growth rates, the consumer must become re-energized to some degree.

Other components of spending are simply not sufficiently large or robust to drive GDP growth to the 3.0 range or beyond. Growth in business spending in plant and equipment seems destined to stay in the mid-single digits, after growing by more than 20 percent last year at this time.

Government spending, usually a source of stability, has fallen for two consecutive quarters. The economy is expanding, but without a more active consumer, growth rates will be moderate at best and hiring will be lackluster. One particularly important source of new jobs in any recovery is small business. Firms with fewer than 500 employees historically account for about one half of all private sector jobs, and actually add workers more rapidly than large business in expansion.

But the latest surveys from the Federation of Independent Businesses show the Optimism Index for small business has declined for the 4th consecutive month, which has put a damper on small business hiring. The “single most important problem” cited by small business owners? It is “low sales,” i. e. sine emptor nullum negotium.