Company Profits Head Toward the Sky
70Corporations Make Money When Unemployment Is High
Companies are posting record profits for the first quarter of 2011 and profits at the biggest corporations are running 26% higher than a year ago. Many companies are enjoying sales increases. Dow Chemical sales were up 20% from a year ago and its average prices were up 12%. Over one-half of the S&P 500 Index companies will report increased profits. Most of the profits come from stronger revenue rather than cost cutting. The cost cutting took place in 2008 and 2009.
Proctor and Gamble reported third quarter fiscal results of an 11% increase in profit. However, P&G says that it is facing $1.8 billion in higher commodity costs which will force price increases on many consumer products such as Duracell batteries, Tide laundry detergents, Pampers, Bounty paper towels, Head and Shoulders shampoo and other brands.
Oil company profits soar due to high oil prices, stronger refining margins and greater natural gas production. Exxon is the profit leader with earnings of $10.65 billion representing a 69% increase. Revenue rose 26% to $114 billion. Exxon has as many reasons for high gasoline prices as they perceive will be needed to explain away their high prices, but some politicians are not buying the reasons. Of course it is good politics for folks back home when the Congressperson speaks out against high gasoline prices. It is difficult to understand why some of the profits cannot be given to the consumer in the form of lower gas prices but there are many reasons why this will not happen.
Wal-Mart Stores CEO Mike Duke offered the astute observation recently that rising gasoline prices are clearly having an effect on the American public. My granddaughter made the same comment. They are “running out of money” at a faster pace between paychecks, Duke said.. Wal-Mart is probably the best barometer of consumer spending for the income level served by its stores.
However, the most important question is, will these high profits result in higher employment? Remember the the J. P. Morgan advice to business; the less people employed the higher the profits.
Unemployment does not seem to be going down so it is unlikely that the higher profits are going to result in increased employment. It is reasonable to ask the question who will pay the higher price for Head and Shoulders Shampoo?
ryankett Level 4 Commenter 7 months ago
I have no idea when you wrote this hub, but it was correct. In 2011 the revenue, assets, profit, and market value of the top 2000 companies in the world rose (as a collective), but most of the banks had not recovered. The first thing to recover in a recession is the markets, it takes a long time before economic growth is represented by growth in employment. It is just the start of any recovery.
Investor confidence only comes back after sustained profit growth, until investor confidence comes back the optimism of the corporations themselves is restrained, and until the corporate optimism returns they are reluctant to expand. Growth always creates jobs, the old jobs won't come back, but new jobs are created when corporations innovate and invest. It just takes a long time to get to that point. When we do get to that point consumer confidence returns, and then bank confidence returns, and what you have yourself after that point is a major boom. Unfortunately everybody gets carried away in eternal optimism and the bubble pops again. That is the cycle.
Unfortunately I don't think that we will see a new boom for a long time yet, 2015 maybe, 2016, we won't see a healthy labour market for another few years after that, and by that time you have lost a generation.
It's worth pointing out that cash rich firms will always seek to gain in a recession by buying up cash poor rivals at bargain basement prices, and with mergers come redundancies. A lot of the lost jobs have come not as a result of falling demand, but as a result of consolidation and mergers. It becomes cheaper for companies to acquire than it does to expand, in a healthy economy it costs far too much to acquire and thus they attempt to expand.
Merger = job losses, expansion = job creation. From the perspective of those who finance a merger or acquisition, buying the 'known' is seen as lower risk than speculating on the 'unknown' too, the cost of borrowing for an acquisition will be much lower than it would to borrow for anything speculative, the banks and investors just can't afford to speculate right now.
Personally I think that the decline of small business and the lack of opportunity for the small time entreprenuer (particularly the lack of opportunity to borrow money to fund business) is a lot more responsible for rising unemployment than corporate job losses, the typical profit making corporation probably shed 2%-3% of their workforce during this recession, the banks perhaps a bit more.
Underemployment is probably a bigger problem and it remains secret and hidden, a lot of medium sized businesses saw keeping everybody employed but working for 3 days a week as a better option than making people redundant, and in a way they should be commended for that, because they are doing so in the hope that they can make all of their employees full time again in the future, but I have no idea whether wholesale underemployment is more or less damaging than partial employment and partial unemployment, I suspect that in terms of the health of societies... underemployment is better than no employment.