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Joblessness continues to rise even as companies report record profits

The rallying cry during the next presidential election could well be, "It's the jobs, stupid!"

As earnings season chugs along Corporate America is boasting record profits, primarily due to robust growth outside the U.S. such as Asia and China in particular. Granted, the financial sector hasn't been faring so well of late, but according to Reuters, 78 percent of companies in the S&P 500 index have reported second quarter earnings that exceeded Wall Street expectations.

During this same period, joblessness rose to 9.2 percent which is higher than when the recession ended. An estimated 14 million Americans are out of work. Many point out that this figure doesn't even take into account millions of other jobless Americans who are no longer being counted among the unemployed because they've been out of work longer than 99 weeks.

The bitter irony is that analysts note it was companies' decisions to reduce staff that contributed to the record profits as well as the higher unemployment. Couple the cost reductions and an increase in regulation from the Dodd Frank financial reform act, and it's easy to see why fewer jobs were added in June than any time in the past nine months.

Also, the average worker hasn't really benefited all that much from these second quarter profit gains. Northeastern economics professor Andrew Sum is quoted as saying "workers have no money, no purchasing power, so that's why consumption is not moving." And this decrease in sales for small businesses is being cited by some economists as the main cause for the lack in hiring.

According to an analysis of economists views, the ability to do more with less has helped create a two-speed U.S. recovery. "We've never seen the kind of shedding of jobs that we saw in this recession. America's corporations have never been running so efficiently," said Ellen Zentner, senior U.S. economist at Nomura Securities in New York.

Northeastern economics professor Sum says the situation is "historically unprecedented" and said it bodes ill for future growth, especially given many companies are sitting on their cash rather than investing it.

Jacob Oubina, senior U.S. economist at RBC Capital Markets says uncertainty about future tax rates and policy, a by-product of the deadlock in Washington over whether to raise the country's borrowing limit and how to rein in a gaping budget deficit, has also made firms cautious.

And Doug Cliggott, U.S. equity strategist at Credit Suisse, predicts investors and CEOs alike should probably prepare for more subdued earnings in the second half and beyond.

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AUTHORAnonymous Insider Comment
  • Jo
    Joseph
    5 August 2011

    The Office of National Statistics (ONS) revealed that unemployment in the UK had now hit 2.5 million.One in five 16- to 24-year-olds are now out of work, after a rise of 32,000 saw the figure reach 951,000 - the highest level since records began.

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