The sluggish pace of hiring may be hobbling the US economy, but it’s not been holding back big US companies’ profits thanks to growth overseas and cost controls at home. And that’s bad news for the more than 14 million Americans without jobs.
Big businesses would normally be desperate for surging job growth as it would feed into domestic demand but these aren’t normal times. Massive growth opportunities overseas, especially in China and other buoyant Asian economies, have some of the largest American companies on track for record profits, even if they’re businesses are mostly treading water in the US
The message last week from the chief financial officer of one of the nation’s industrial giants couldn’t be clearer.
“We’ve driven all this cost out. Sales have come back, but people have not,” said Greg Hayes, chief financial officer at United Technologies Corp. “It’s the structural cost reductions that we have done over the past few years that have allowed us to see strong bottom-line results.”
The company, the world’s largest maker of air conditioners and elevators, said second-quarter profit rose 19 per cent, and it is doing most of its hiring in emerging markets where demand for its products is growing fastest. It isn’t alone in seeing profits climb in the current earnings reporting season.
About 78 per cent of companies in the benchmark S&P 500 index that have reported second-quarter earnings have beaten Wall Street expectations.
Many benefited after slashing costs when the financial crisis hit and then keeping tight control on them even as sales recovered. Economists say the ability to do more with less has helped create a two-speed US recovery.
The S&P 500 has doubled in value since the recession ended and per-share earnings are currently on track for a new annual record, while employment remains below the level seen in late 2008 when corporate profits troughed.
From / Gulf today