Archive for February, 2011

07
Feb
11

profits keep going up – jobs don’t.

Corporate America continues to report impressive profit gains but job creation continues to lag. Dividend increases are up sharply and the Dow Jones Industrial Average is above 12000. It makes job growth the continued missing piece of the economic rebound puzzle.

So far, earnings are up 28% from a year earlier and sales are up 7.7% for the S&P 500 firms that have reported. But the juxtaposition between profits and job growth remains a big mountain for companies hoping to keep growing their business to climb.

The other thorn in the side of the economy would be lackluster housing market, which provides a source of spending for consumers.

The lack of significant job gains 18 months after the recession was deemed “over” isn’t such a mystery when considering how companies were able to return to strong profit growth in a short period of time. Companies mainly relied on aggressive job cuts, and with companies now enjoying their resurrected earnings and demand still choppy, they are not adding to their payrolls.

To add to the fun, the price of commodities have been skyrocketing. This adds more reason to hold off on hiring. The commodities spike is pressuring profit margins and keeping companies guarded about adding to labor costs.

For the first month of 2011, the economy added a paltry 36,000 jobs, the Bureau of Labor Statistics reported Friday. Economists had expected more than 130,000 jobs. The unemployment rate fell to 9% from 9.4%, as more people found work and the pool of workers fell by more the 500,000. Winter weather that blanketed much of the country contributed to the weakness.

Some companies in hiring cycles include Enterprise Rent-A-Car, Norfolk Southern Corp., and Union Pacifiic.

But this is being offset by sectors such as banks and drug makers where jobs are still being pared. Several banks, including American Express Co. and Wells Fargo & Co., have either recently announced layoffs or signaled job cuts might be coming. Abbott Laboratories said it is trimming 1,900 jobs, or 2% of its work force.

Pfizer Inc. last week said it would slash as much as 5% of its 110,600-person global work force, including the layoff or transfer of about 1,100 employees at its Groton, Conn., facility. Pfizer plans to stop research in allergies, urology and other areas that didn’t seem as likely to bring medicines to market soon, a spokeswoman said.

Again, if jobs don’t recover it’s hard to see how the economy will be able to sustain meaningful growth.

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