HIGHER CORP PROFITS & NO U.S. JOBS
HIGHER CORP PROFITS & NO U.S. JOBS
2004-02-03 at 10:14:00 am #4926
Higher corporate profits aren’t leading to hiring
NEW YORK, Feb 2 (Reuters) – When Philip Gardner took a research position at Michigan State University in 1985, big corporations were snapping up graduates.
As the U.S. economy rebounded from a recession, he recalled, Midland, Michigan-based Dow Chemical Co. (NYSE:) was hiring more than 100 graduates a year, while automakers hired even more.
Two recessions later, the economy is rebounding again, but the university’s once-vast job pipeline is gone.
“Even though earnings are up for a company like Dow Chemical, they’re just not hiring that many people any more,” said Gardner, who directs the Collegiate Employment Research Institute.
Anecdotal evidence like this doesn’t just worry the jobless, their families and friends. The lagging job market could become a key tripwire for President Bush in this year’s election. An economic recovery without jobs may not sit well with voters, who could side with Democrats suggesting that Bush has favored big business at the expense of workers.
And without a pickup in employment, consumer confidence and spending on Main Street may take a hit.
Indeed, even companies with quarterly profits soaring are shy about adding workers — if they’re not laying people off.
“We listened to over a hundred quarterly earnings conference calls and we have not heard from anybody who says they are picking up the pace of hiring,” said Richard Yamarone, director of economic research at Argus Research. “Not one.”
JOB EXPORT WORRIES
U.S. companies continue to look toward India and China for cheaper labor, adding to the worries of some that new jobs are headed to Guangzhou and Bangalore rather than Chicago or Boston.
Confirming these fears, factory closures and mass firings made headlines this earnings season.
Just last week, Eastman Kodak Co. (NYSE: EK – News) said it would cut 15,000 jobs as it redefines itself to keep pace with the market for digital products. Kraft Foods Inc. (NYSE: KFT – News) said it would cut 6,000 jobs and close 20 plants as it reported lower fourth-quarter earnings.
Such cuts are inevitable as products go out of fashion or companies run into trouble. But even companies with soaring profits are cutting back their work force.
Both Dow Chemical and rival DuPont Co. (NYSE: DD – News) reported higher-than-expected fourth-quarter earnings and gave optimistic forecasts for this year — but still announced plans to cut more jobs.
And in a trend consistent across the banking industry, Wells Fargo & Co. (NYSE: WFC – News) last month reported strong fourth-quarter profit, but said it cut 7,500 of its 10,000 temporary mortgage positions since September. More layoffs are on the way, the company said.
Meanwhile, only 1,000 new jobs were created in December, the Labor Department said. Last week, initial claims for state jobless benefits fell by 1,000, to 342,000, from the previous week.
John Lonski, chief economist at Moody’s Investor Service, predicted job growth could start as early as March, based in the rapid increase nationwide in company productivity.
Henry Willmore, head of U.S. economics at Barclays Capital, agreed.
“We’ve already started to see this happen,” Willmore said, as the financial-services industry has started adding jobs for the first time in years.
Expect more job postings this quarter, he added, but not the glut of hiring in the post-recession mid-1980s.
Willmore attributed the hot job market in that period to the U.S. economy’s sudden growth – unlike today’s sluggish pace.
But Gardner, of Michigan State, remains skeptical of an imminent job comeback.
“Economists keep saying that these companies should be hiring,” he said. “But they’re not.”