Fewer Promotions, Fewer Pensions

Peter Cappelli, director of Wharton's Center for Human Resources, has done extensive research into the changing nature of the workplace. As he and others have noted, companies no longer promise job security, generous benefits packages or even pensions, and employees no longer feel loyal to their employers or obligated to stay for long periods of time. Employees are responsible for managing their own career track and seeking out the mentors and training they need to move on in their current company or, just as likely, in a new company.

Cappelli agrees that organizations "don't have quite as much influence over people as they used to in terms of shaping their goals and aspirations, in part because people come to these jobs at an older age and change jobs more frequently than in the past. Does that necessarily mean people are on their own career path? It depends what you mean by that. I'm not sure it means they are eschewing corporate success. But they are looking outside their current employer's definition of success, more so than in the past."

Cappelli cautions, however, that it's unlikely employees can go on cruise control and still hope to be retained and valued by their employers. "It used to be you could just lie low and wait for the pension. That doesn't happen much any more." And while some employees may not pay as much attention to the goals that their companies want them to pursue, they "continue to work hard because they are afraid of being laid off.... Companies systematically go through and fire people who are not pulling their weight. The ability to punish people into appropriate behavior is one of the great and unpleasant lessons of the 1980s. Employee morale sank and productivity stayed up because people were afraid of being fired," Cappelli notes, adding, however, that this dynamic changes in a tight labor market.

Wharton management professor Sara Kaplan "could imagine a scenario where people have discovered that there is not too much point being loyal to their employers, and then go on to say, 'Okay, I have gotten where I am going to get, and I am going to focus on the other part of my life. I will keep working but won't invest all my energy in my job.'"

But Kaplan also thinks "everyone needs something to be passionate about, so it would be hard for me to imagine that people would simply ramp down on their job without having a crisis or without having found something else" to interest them. Indeed, in today's economy, she adds, "you can't keep your job unless you are engaged, to a certain extent. Corporations don't want people who don't want to go higher. They don't want people who won't strive. You can't plateau; there are always people biting at your heels."

Directly related to the issue of job satisfaction is the question of job design. "Management scholars have been studying this for a long time," says Wharton management professor Sigal Barsade. "Whenever a company designs a job, it must take into account how employees view that job, whether their goal is to get ahead, whether work is central to their lives, and so forth. A company can make a real error trying to redesign a job to be more enriched if the employee doesn't want that," especially if the new job definition requires them to work harder.

What is crucial, Barsade says, "is good job fit. Is the person doing what the company needs done? If the answer is 'yes' and the person also is good at what they do but simply doesn't want to do more, then that could actually be a good situation, especially for jobs that don't include room for promotion." This is applicable in particular to customer service positions where people need to be engaged while they are providing the service, but are not expected to be thinking of ways to redesign the whole customer service system. "So the fit needs to be between what the organization needs and what the employee wants and values. If that fit isn't there, that's when you are going to have a problem."

When should employees who have no interest in advancing or taking on higher challenges worry about losing their job? "I think as long as these employees are working diligently and competently and are willing to change -- whether that means learning a new technology or adapting to a new work process -- they should be safe," says Barsade.

Continued Next Week!

Source: McKinsey& Co.

It’s tough to argue that the health of the nation’s 7 billion sq. ft. office market is anything but robust. Demand is strong and vacancy rates have fallen. Lofty construction costs have tamped down new supply and asking rents shot up at their fastest rate in six years during the third quarter.

But a host of economic risks, ranging from weak job growth to ripple effects from a housing slowdown, could impact the office market in coming months. The shift may already be upon us: Take third-quarter job growth, which many economists viewed as mediocre -- non-farm payrolls increased by just 51,000 in September after rising by 188,000 in August. The consensus prediction among 23 economists polled by Dow Jones Newswires was that payrolls would jump by 125,000 in September.

While recessions are notoriously difficult to predict, some troubling signs have emerged in recent months. One quirky example is the Federal Reserve’s “beige book” report from September.

This closely watched survey, essentially a roundup of regional economic reports, used the word “weak” 50 times. The July report only featured 40 references to “weak.” What’s telling is that the January 2001 report used the word 53 times and that was two months before the last recession officially began. One real estate economist believes that the office market is slowly feeling the effects of weaker job growth.

Leasing demand answers to job growth. So will this be a gradual slowdown or a flat-out recession? The Conference Board, a global research and business membership organization, reported on Tuesday that several economic indicators suggest slower growth --but not a recession -- on the horizon.

Within the past three months, the Conference Board’s index of leading economic indicators has turned down relative to its level six months ago. That’s significant because it marks the first time that the index has fallen since the current economic expansion began in 2003.

“While this signal is not particularly alarming, since the downturn is still rather modest, it does suggest that the economic cycle is more mature than is generally presumed,” says Gail Fosler, executive vice president and chief economist at the Conference Board.

“Everybody is watching the job numbers and the housing market very carefully,” says Bob Bach, national director of market research at Oak Brook, Ill.- based Grubb & Ellis. “It’s also getting harder to deny that growth has pulled back a bit given the recent job numbers.”

Sam Chandan, chief economist of research firm Reis, points to a more troubling sign of a slowdown: Net absorption fell from 16 million sq. ft. nationally in the second quarter to 10.7 million sq. ft. during the third quarter. That means tenants are taking on less space and demand is cooling.

“The fourth quarter could be a real turning point for the office market,” says Chandan. “And the consensus is that 2007 will bring slower growth than 2006, which may go down as a banner year for the office market.”

And what about a severe slowdown in the housing market? History offers some guidance: If the housing market were to reprise its last major downturn in 1991, Bach projects that roughly 716,000 payroll jobs would be lost. That total represents 42% of all net additions to non-farm payrolls by all sectors between August 2005 and August 2006.

More than 90,000 of these jobs would be in housing-related service sectors that tend to occupy office space. The upshot is that such a severe slowdown could generate negative net absorption approaching 16 million sq. ft. over the next four quarters. But, Bach adds, that is a “worst-case scenario.”

It’s important to note that most of the bearish economic forecasts in recent weeks have all touched upon a housing slump. Last week, for example, International Strategy & Investment economist Nancy Lazar said this in the Wall Street Journal: “I'm very worried about housing and the potential negative impact on overall economic activity...the big question for me is how will that impact consumer spending?"

Source: The National Real Estate Investor

• Global Business Confidence
• Global business confidence held steady again in early October at the level that has prevailed since late August. The recent stability in sentiment is welcome after the sharp decline this summer. Sentiment is currently as low as it has been since the fall of 2003 and is consistent with a global economy that is growing measurably below its potential. Confidence is strongest in South America, followed by North America, Asia, and finally Europe. The recent stability in sentiment is due to a modest firming in sales, but this is being offset by weaker hiring and inventory investment. Pricing pressures remain elevated, but have abated substantially since peaking in the summer.

• Wholesale Trade (MWTR)

• Wholesale inventories were well above consensus expectations, coming in up 1.1% for August. Wholesale sales were also up 1.1%, and the I/S ratio remained at 1.15.

• Treasury Budget

  The unified surplus for September was $56.0 billion, slightly larger than the CBO’s preliminary estimate of $54 billion. For the complete fiscal year 2006, which ended on September 30, the U.S. ran a unified deficit of $247.7 billion, 23% smaller than the deficit in FY2005. This was the smallest deficit since FY2002.

• Chain Store Sales

• Chain store sales ended a four-week slide, rising 0.5% in the week ending October 7, according to the ICSC. Year-over-year growth accelerated to 3.7%.

• MBA Mortgage Applications Survey

• Mortgage demand decreased 5.5% in the week ending October 6. Purchase applications decreased 5.3% and refinance applications decreased 5.8%.

• Oil and Gas Inventories

• Crude oil inventories rose by 2.4 million barrels for the week ending October 6, according to the Energy Information Administration, which is better than expectations. Gasoline inventories inched up 0.3 million barrels for the week, and distillates posted a 1.6 million barrel drop, slightly more than expected. This report is broadly bearish, although the drop in distillates could spook markets.

• Natural Gas Storage

• Underground storage of natural gas increased by 62 billion cubic feet during the week ending October 6. This was a smaller build than the market consensus of a 66 Bcf increase in inventories. With the gain, inventories are now 11.8% above the five-year average, down slightly from the 12.1% increase in the week prior. This report is likely to moderate bearish pressure on prices.

• Manufacturers Alliance/MAPI Survey

• The Manufacturers Alliance/MAPI composite index fell to 64 in September from a reading of 71 in June. The index points to slowing but continuing expansion of manufacturing activity in the coming quarter.

• International Trade (FT900)

• The nominal U.S. trade deficit in goods and services widened in August to a new record high. The U.S. trade deficit came in at $69.9 billion, $1.9 billion more than July's revised $68.0 billion, according to the Bureau of Economic Analysis. In August, both exports and imports increased, while imports increased more than exports. The goods deficit with China, however, widened $2.4 billion to $22.0 billion. Crude oil prices increased in August, which in return increased the nation's total import bill for energy- related petroleum products to $30.5 billion.

• Job Openings and Labor Turnover Survey
• Gross job flow data are consistent with other indicators of a slowing economy. The rate of hiring declined in August to 3.5%, from 3.7% in July but because separations declined as well, net job creation remained fairly strong. The economy created 4.7 million jobs in August while 4.3 million workers left their jobs either voluntarily or involuntarily.

Source: Economy.com