Why are companies still not hiring?

On Behalf of | Aug 11, 2010 | Bankruptcy |

Rick Newman reports that since late 2009, corporate profits have been surging, yet companies are hoarding cash instead of hiring more workers.  In the latest earnings period, three-quarters of all S&P 500 firms reported higher sales and profits, with the majority beating Wall Street’s earnings estimates.  And since last summer, S&P earnings growth has been an astounding 55 percent, according to Bank of America Merrill Lynch.  That’s the best performance, by far, in any 12-month period following a recession.

But a rebound in jobs is clearly not following the surge in profits.  As we all know, hiring remains painfully weak, with the unemployment rate stuck at 9.5 percent and Americans gloomy about the future.  The private sector is finally adding a few jobs, but government is shedding more.  With the economy slowing, that unhappy trend could intensify–and unemployment could drift back toward 10 percent by the end of the year.
There are a number of reasons for this phenomenon.  One, the earnings surge is misleading.  The numbers are so high because they are being compared to abysmal lows.  Secondly, the earnings do not always reflect the U.S. economy.  Half of all S7P 500 firm’s earnings actually come from overseas.
Third, for many big firms, those big earnings gains will deflate when the comparisons get harder next year.  Next year will be tougher.
Finally, demand is weak and technology and foreign labor are cheaper than U.S. workers.  Many jobs are being outsourced overseas and many people are experiencing cuts in their hours and overtime.  All of these things lead people to have to seek out their options to survive.