Corporations Are Loaded

by Craig Jennings, 7/15/2010

Yet, somehow they just can't bear to part with their gains and put Americans back to work. And that's pretty much the reason a second round of economic stimulus (and lots of it) makes a lot of sense right now.

A survey last month of more than 1,000 chief financial officers by Duke University and CFO magazine showed that nearly 60 percent of those executives don't expect to bring their employment back to pre-recession levels until 2012 or later -- even though they're projecting a 12 percent rise in earnings and a 9 percent boost in capital spending over the next year.

When asked why companies are holding back so much, many economists cite broader uncertainty that goes well beyond anything happening in Washington. Firms aren't sure whether the economy can sustain a strong recovery. And as long as consumer spending remains low, there's not much incentive for companies to ramp up[emphasis mine].

And according to the Economic Policy Institute, corporations are seeing their profit margins rebound and are doing so without increasing their work forces.

As long as people aren't buying stuff, aggregate demand will remain weak. Seeing no reason to expand production to meet non-existent demand, firms will maintain current levels of employment. One reason folks aren't buying stuff is because they have no money to spend. Almost 15 million Americans don't have jobs (6.8 million of those have been unemployed for more than 27 weeks), and 8.8 million workers are part-timers because they can't find full-time work.

Put this all together and we can conclude that:

  • Some 23 million Americans are in a really bad place economically, and there doesn't appear to be anything on the horizon to make them think that now is the time to be spending what little cash they have.
  • The last thing corporations need are tax cuts; they already have plenty of cash, but are just waiting for customers to deplete their warehouses.
  • Handing out a few hundred billion dollars through Unemployment Insurance (or other means) will mitigate the plight of the American worker while reducing slack in the economy, which will in turn prompt firms to hire workers to help them meet the newly created demand.

Image by Flickr user Martin Deutsch used under a Creative Commons license.

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