In the early stages of this recession (fall 2008), firms panicked. They saw every leading indicator falling off a cliff so they assumed a Great Depression level event was coming. As a result, they slashed production and laid off workers by the millions.
Now that the situation has stabilized, they are rebuilding inventory and hiring back some of the key personnel that had been fired.
The problem is that the next phase of the business cycle, the recovery, hasn't happened yet.
Firms are producing just enough product to meet current demand. They don't see the need to expand because capacity utilization is still so far below historical averages.
The bigger problem is that much of that capacity is geared towards making products and offering services that no one wants. We have nearly 3 million unemployed construction workers. In order for these people to be put back to work, we would need to start building new houses at 2006 levels.
That's just not going to happen any time soon. We are constructing new homes at below-trend rates, but a return to the historical average still means at least 2 million extra residential construction workers with nothing to do.
Unfortunately, 2006 level construction was a complete aberration. We simply do not need so many construction workers. Thus, they will never be re-hired as roofers, plumbers, landscapers, drywallers, etc. Their skills just aren't needed and won't be for many years.
The number of licensed real estate agents in California doubled from 200,000 to 400,000 between 2000 and 2007 while the overall population increased only around 7%.
Again, those extra 200,000 real estate agents just aren't needed anymore. So long as they continue trying to work in the industry, they will continue driving down profits and making it even harder for the industry to survive.
Lastly, look at US auto sales:
The new normal is roughly 12-14 million cars sold in the US every year. But we have the capacity to sell 20 million!
That means thousands of car salesmen and auto workers must be laid off because their skills are no longer needed.
With Peak Oil, we should expect to see an even greater decline in car sales as people swap over to public transportation and carpooling. We might only need 10 million cars a year next decade and most of those will be low-margin but highly fuel efficient hybrid sedans.