Merit Budgets Plunge to Lowest Level Ever

A recent study done by Watson Wyatt show merit budgets plunging to their lowest level ever (at least since records of these kinds of things have been kept), and we at AHRS think they are going even lower. Why? Just follow the news...

It's hard to be sanguine about the state of the labor market in the face of recent news:

• GDP fell a -6.2% in the fourth quarter of 2008 (worst fall since 1982).
  
• The Federal Reserve is predicting a -7% drop in 1st quarter GDP (from the Fed's "Beige Book" report released 3/4/09), followed by a projected 3% drop in the second quarter.
• The ADP National Employment Report(R) reported today that that private sector employment decreased by 697,000 in February.
• As companies sales, profits and balance sheet continue to deteriorate, there is nowhere for compensation budgets to go but down, and then down even further.

At this point, we do not see any reasonable hope for labor market improvement until 2010, at the earliest. Since labor markets tend to lag the economy's lead, and almost no one expects the economy to improve much this year, the likelihood of a turnaround in the labor market this year simply is not in the cards.