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Why Companies Aren't Hiring Now

The stock market was rattled on Tuesday by underperforming manufacturing data.

The Richmond Federal Reserve Index, which measures manufacturing performance in the upper Southeast and mid-Atlantic regions, fell to -11 in July, down from a 7 in June. This signals a significant drop in new orders and shipments.

This comes just a week after the Philadelphia Federal Reserve Index reached a two-year high, which had rallied the market. Such a drastic swing in confidence in the manufacturing sector suggests that uncertainty will stretch into the late summer.

The data comes at a pivotal time for the Obama administration. For the eleventh time in his presidency (by ABC News' count), Obama announced that he will pivot back to the economy in an effort to create jobs, with a strong emphasis on U.S. manufacturing.

Even though the New York Stock Exchange (NYSE) recently touched all-time highs, American companies are reluctant to hire, particularly with greater uncertainty on the horizon. Perhaps if the President wishes to create new jobs, the administration should address the primary reasons why companies are not hiring in ways that would reflect strong economic growth, as the markets falsely reflect.

Here are five reasons why companies are not hiring right now.

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If You're Out of Work Blame Your Cell Phone

Times are tough out there.

We would like to blame China, incompetent politicians, Federal Reserve Chairman Ben Bernanke, the banking system, or some unseen forces for this phenomenon.

But in reality, the answer is no further than our pockets. The real culprit is your cell phone.

The arrival of these gadgets changed everything...

That's because before the cell phone boom, it was very difficult to run an efficient international outsourcing operation. Until then, there were no means of communicating between different offices other than fax, telex, and the balky international telephone system.

Consequently, these communication barriers made manufacturing products overseas cumbersome and expensive.

And since there were relatively few outsourcing operations at the time, there was also an acute shortage of skilled employees in poor countries, making a difficult situation even worse.

As for competition, there wasn't much. That meant the jobs of workers in rich countries were still relatively secure.

But not for long.

Starting in 1995, the Internet and the modern telecommunications revolution changed everything.

The Race to the Bottom

Suddenly, these same barriers began to come down. The job market was changed forever.
Now it was possible to communicate on a real-time basis with factory or service operations in poor countries all across the globe. Outsourcing had been born.

At about the same time, the retail behemoth Wal-Mart Stores Inc. (NYSE: WMT) discovered a China and the price advantage it could gain by manufacturing goods overseas. Wal-Mart's new world began to take shape.

Goods could now be designed by Wal-Mart, made to Wal-Mart's specifications and delivered to Wal-Mart stores in just a few weeks, enabling the retail giant to keep up with trends in fast-moving markets.

The rest, as they say, is history.

There was only one problem. This sea of change wasn't self-limiting.

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