No Rush to Hire Even as Profits Soar
Wall Street Journal/Feb 7
With 73% of the Standard & Poor’s 500-stock index by market value having reported fourth-quarter results, earnings are up 28% from a year earlier and sales are up 7.7%. But the contrast between profit and job growth remains a big hurdle for companies hoping to keep expanding their business.
Corporate profits surge
Corporate profits surged in 2010, according to analysis of fourth quarter 2010 company results by Deloitte, the business advisory firm. The results were stronger than expected with 69% of company results exceeding market forecasts, indicating a positive outlook for companies going into 2011. The 187 US companies that reported fourth quarter results posted an average growth in net income or profits of 45% over the last year. The 34 European companies in the study, most of them based in Continental Europe, have seen profits rise on average by 25% over the last year.
More Jobs Ahead as Spending, Corporate Profits Grow
Fiscal Times/Feb 7
U.S. workers have paid a heavy price for Corporate America’s skittishness about the economy. Uncertainty about future sales has put productivity gains and cost control uppermost in the minds of CEOs, while hiring and pay raises have been low priorities. Consequently, profit margins have staged one of the most rapid recoveries ever, and earnings have zoomed higher. For 2011, companies will have to start sharing some of the gravy with their employees. The fog of uncertainty is lifting, and companies will need more workers to meet stronger demand. That means earnings are sure to slow, but the bottom line should remain strong enough to keep investors happy. Improvement in the labor markets is gaining momentum, although the shape of that progress was distorted by January’s brutal weather.
Corporate America braces for commodity crunch
Wall Street has been riding a wave of strong corporate profits for months, but surging commodities prices are making some investors nervous about earnings growth in the second half of the year… The rise in raw commodities hasn’t cut into companies’ bottom lines yet and some analysts think they will continue to be able to absorb them. “The top-line momentum has more than offset rising input costs,” said Alec Young, an equity strategist at Standard & Poor’s. “It all depends on how high prices go, but it seems premature to sell stocks on this issue now.”.. Brusca argues that commodities are a small part of the overall production cost for most companies, while labor costs, typically the largest, are relatively cheap. And companies continue to benefit from high levels of worker productivity.
Bill Gross (Pimco)/Feb 2011
Are record corporate profits a fair price for America’s soul? A devil’s bargain more than likely. This metaphorical devil’s bargain has its equivalent in the credit markets these days. Central bankers have lowered the cost of money for 30 years now, legitimately following global disinflationary forces downward, but also validating increased leverage via lower real interest rates. Today’s rock-bottom yields, however, have less to do with disinflation and more to do with providing fuel for an asset-based economy that promotes unsustainable wealth creation and a false confidence in perpetual capital gains. Real 10-year interest rates fell from over 5% in the early 1980s to just under 1% in recent months and have arguably been responsible for 3,000–4,000 Dow points and 2–3% annual appreciation in bonds over those three decades.
S&P 500 Earnings Per Share
Standard & Poors/Jan 2011
U.S. After-Tax Corporate Profits
St. Louis Fed/Q3:2010