Reports of sky-high unemployment have business owners concerned—both in adult and in the mainstream. A consumer who doesn’t have a job isn’t likely to spend liberally. Even if he has savings from which to draw, every dollar becomes more important, and a list of priorities—explicit or implied—begins to take shape. Rent, groceries and other essentials inevitably find themselves at the top, with nonessential bills (like credit cards) coming next. Recreation and other luxuries, from eating out to watching a few girls eating each other out, just don’t command the attention they did when a steady paycheck was in the picture.
So, it’s natural to wonder when the situation will change. Unemployment’s a bitch for everybody, and it doesn’t seem likely to go away anytime soon. In fact, executive outplacement firm Challenger, Gray & Christmas is forecasting a “jobless recovery,” meaning that the economy will turn before new jobs are created. It seems counterintuitive, as people need incomes in order to get out there and spend. If you don’t have any cash coming in, how can you send it out into the economy?
It turns out that jobs aren’t a prerequisite for consumer spending. The opposite, actually, is true. Until people start spending, jobs aren’t likely to follow. The trigger comes from alternatives to full-time employment, which put wages into the economy before full-time positions are created. Companies are likely to hedge their bets, using contract workers, temporary employees and outsourcing relationships to get the services they need while controlling costs and minimizing their obligations.
Then, as they become comfortable with the results of these arrangements—not to mention the strengthening of economic conditions—they’ll start to bring these positions in-house, creating a more robust stream of consumer spending and fueling economic growth.
Understanding Unemployment Data
The numbers don’t lie, but they don’t always tell the whole truth. Challenger, Gray & Christmas estimates that the unemployment rate across the United States is approximately 9.4 percent, based on data from the U.S. Bureau of Labor Statistics. This is a high number in its own right, and it’s downright frightening when you consider the fact that, until this recession, unemployment was so low as to be considered to be nonexistent.
This data, however, masks the depth of real unemployment. The BLS only tracks jobs lost in the past six months. After this threshold is reached, a potential employee is considered to be out of the hunt, based on the dated thinking that the person is no longer trying to find a job. Well, when unemployment continues to increase for a considerable period of time, it’s pretty clear that jobs are disappearing and more people are looking for them. The odds of finding work become ever slimmer, rendering inaccurate the assumption that unwillingness is the cause.
Further, rough economic conditions make new job creation unlikely, as companies keep a tight grip on their cash, spending judiciously and trimming any expenses that aren’t directly necessary to the operation. This conservatism is a double-edged sword. It provides the protection necessary to keep businesses afloat, preventing the loss of additional jobs, but it impedes recovery, as spending is necessary to create new positions and alleviate the unemployment situation.
In this game, nobody wants to go first. Consumers don’t want to spend until they’re working again, and businesses don’t want to create work until they see consumers spending. The cycle feeds itself, requiring some form of outside intervention to effect change. Eventually, through tax incentives, innovation, eased monetary policies and other broad macroeconomic factors, companies become willing to dip their toes in the employment pool. It doesn’t start with a dive, because caution still pervades the economic system, but this is where you’ll find the roots of an upturn.
Finding the Recovery
Again, the numbers obscure the reality. Companies will not want to commit to full-time employees right away. After having cut their staffs to the lowest levels possible, a change in confidence will lead them to hire again, reducing the burden on the survivors and possibly contributing to plans for growth. For lower-level positions, temporary labor will begin to increase, minimizing spending but supplementing existing resources.
For larger, more complex roles, contract workers are used. These skilled resources may handle intricate technical projects or even assume middle-management responsibilities. As discrete efforts turn into ongoing processes or business obligations, these limited employees will have the opportunity to take on full-time roles, bumping employment numbers higher … but this takes time.
The gap between business spending on quasi-employees and their committing to permanent hires is where you will find the jobless recovery that Challenger is predicting. None of these temp or contract positions will change the unemployment rate, which is defined as full-time employment only. But these engagements will put wage income back into the economy.
The renewed flow of cash into bank accounts will invariably direct some dollars toward more than just the essentials—from restaurants to hotels to movie theaters to … yes, porn. As confidence continues to grow and wages become reliable salaries, consumer spending will increase, accelerating the economic recovery. With signs that unemployment may have reached bottom, the turn in confidence is likely on the horizon, which means consumers will soon be spending again. We may skip along the bottom for awhile—calling a recovery really is a fool’s endeavor—but it seems like things are unlikely to get worse (unless there’s a time bomb hiding in the housing market, because of falling prices).
The Debt Barrier
It all seems so simple, right? Sooner or later, the unemployed will start to get paid again, and the money will flow. Well, there’s one more factor to keep in mind: fiscal responsibility. Consumers realize they were burned by the easy credit of the past decade and don’t want to find themselves in this situation again in a few years. This is evident by a Federal Reserve report that showed five months of declines in consumer debt outstanding (through June 2009).
In June alone, consumer debt outstanding dropped 4.9 percent to $2.5 trillion—double the rate analysts expected. This $10.3 billion decline follows a $4.7 billion downward move in May. People are looking for safety, and eliminating credit-card debt is a good way to find it. This prudent behavior, however, could delay an economic recovery.
Seventy percent of our economy is wrapped up in consumer spending. When people buy things, conditions improve. The economic growth experienced throughout this decade involved people buying things—but with money they didn’t have. Taking this same approach now would only set the stage for a repeat performance, and nobody wants to relive what has been called the worst recession since the Great Depression. So, instead of subscribing to a new adult website, buying a dildo or enjoying a night of gentlemen’s club relief, consumers are focused on getting rid of the Visa bill and paying off the car loan.
It’s easy to lose sight of the implications of debt reduction. Sure, it delays the recovery. We’ll have to wait longer for customers to start opening their wallets again, despite the fact that we’re more than ready to see their cash flow in our direction. When the consumer waits, the business owner has to wait—and the adult industry is tired of waiting.
The upside is that the recovery is more likely to be real—and sustainable. We won’t be engineering an economic condition on faulty principles. Until this occurs, the smarter players in our business—and every other—will continue to focus on survival, and those with strong cash positions will begin to think about investing in growth opportunities to capitalize on a future upturn.
Payday for Porn
As you watch the market and cross your fingers for a swift recovery, don’t let depressing unemployment statistics get you down. Though you may intuitively feel these numbers suggest the state of the economy, you’ll be looking for hope in the wrong place. Instead, watch data on consumer spending. Once consumers are comfortable with their debt levels and have income coming even from temporary sources, the recession will slowly give way to a recovery.
The situation that’s unfolding now suggests a bit more pain, but what will follow is the sort of growth one can trust. Consumers have learned something over the past few years. Spending is great, and the need for retail gratification will never go away.
But now they will be more careful about spending what they don’t have. Fortunately, the return of income will give them some cash to put to work in your business, and you’ll have a chance to win long-term customers during a long-term recovery.
This article originally ran in the October 2009 issue of AVN.
