Hey SI, This was in the Chi Trib today. This is a good sign.
Microsoft Corp. flipped a switch amid the darkness of a jobless economic recovery Thursday.
The beam of light--the software giant's plans to add 5,000 jobs--represents a nearly 9 percent increase in the Redmond, Wash.-based company's employment.
More important, it's a sign of confidence from a leader in an industry that's spilled hundreds of thousands of workers onto the unemployment rolls since the tech-heavy Nasdaq collapsed three years ago and helped plunge the larger economy into recession.
Increased hiring--the last step in any recovery--is what will lift the U.S. economy out of its slump, but businesses have been timid about taking the risk of adding workers.
Microsoft's decision to add jobs despite slowing annual sales growth is one of the first such major moves.
"Psychology can mean everything," said LaSalle Bank chief economist Carl Tannenbaum. Businesses "need to go from looking at investment in human resources as costs" to seeing them as long-term investments.
Ironically, among the reasons Microsoft is staffing up is to sell more software that helps businesses cut costs and, in some cases, eliminate jobs.
That's been part of the paradox in an economy where businesses continued to rack up productivity gains even during the recession of 2001. Businesses still are focused more on cost cutting than growth initiatives.
"It's still a difficult climate [in which] to win business," said Michael Gorriaran, general manager of Microsoft's Midwest District, which includes Illinois, Indiana and Wisconsin.
Clients want technology that returns their cost of investment quickly--within three months to nine months, he added.
Gorriaran expects only "incremental benefit" to the Midwest region from Microsoft's plans to add 5,000 jobs worldwide during the current fiscal year, which started in July.
All but 1,000 of the 3,000 to 3,500 new jobs slated for the United States will be in the Puget Sound area, where most of Microsoft's research and development is based. Another 1,500 jobs will be added abroad, likely in sales, analysts said.
The hiring announcement came at the company's daylong annual meeting with analysts, where Microsoft said it planned to boost research and development spending 8 percent, to as much as $6.9 billion, including the cost of equity compensation to employees.
Microsoft's R&D spending increase puts the figure within its historic range when measured as a percentage of estimated sales, or about 20 percent--the same percentage as last year.
The decision to ramp up R&D is likely to provide a dash of cheer to the high-tech sector. Since late 2000, tech companies have struggled with the devastating economic fallout caused by the bursting of the dot-com bubble, the drop-off in telecom investment and the slowdown that eventually widened to the U.S. economy as a whole.
But because Microsoft's situation is unusual in a number of ways, it's far from clear whether the move holds implications for the broader economy.
Not only is it tethered to the boom-and-bust technology sector, but Microsoft enjoys near-monopoly market share in a broad swatch of the market for operating software.
As the Federal Reserve Board has tried to spark the economy through repeated interest rate cuts, consumers have responded by maintaining spending on everything from big-ticket appliances to little luxuries.
Corporations, by contrast, have largely remained on the sidelines, cautiously refraining from expanding production capacity or upgrading equipment. And it is those large-scale capital expenditures, rather than the less-concentrated spending of consumers, that are considered key for a real upsurge.
The nation's capital stock--the value of all equipment, factories, warehouses and stores--grew by $100 billion in the 12 months through the first quarter, or about 1 percent of gross domestic product--the slowest rate since before World War II, said economist Mark Zandi of Economy.com.
The net value of all information technology equipment still is declining because businesses are not replacing old equipment quickly enough.
"Businesses will start to invest [in equipment] again before they begin to hire in any significant way" because hiring adds fixed costs such as health-care benefits, Zandi said.
Investment should accelerate by early next year in response to the recently enacted bonus depreciation allowance, which allows businesses to write off their equipment faster.
Rob Enderle, analyst at Forrester Research, said Microsoft is smart to beginning hiring in advance of a recovery, when talent is cheaper. "One of the risks is having too few people when the market starts to come back," he said. "The only way to know what's going on in the market is to have more people out there."
Zandi said Microsoft's hiring announcement may prove to be "one of those first baby steps by businesses toward growth."
"There's a complete lack of confidence," he said, "almost a mirror image of three years ago" during the boom.
"It takes one company in each industry to say, `It's time to step up and expand and grow and I'm going to take the risk,'" he said. "It's like a light switch going on.
