Corporate Profits 'Near-Historic' In Second Quarter, Thanks To Cost-Cutting & Layoffs

[Amerigo Vespucci]

Corporate Profits 'Near-Historic' In Second Quarter, Thanks To Cost-Cutting

http://www.huffingtonpost.com/2010/10/04/corporate-profits_n_748889.html

The Huffington Post | William Alden First Posted: 10- 4-10 09:07 AM | Updated: 10- 4-10 09:16 AM

Corporate America finished the second quarter with "near-historic" profits, largely by cutting costs, laying off employees and streamlining operations, the Wall Street Journal reports.

Profits for companies in the S&P 500 soared 38 percent from the same period last year, hitting $189 billion, the WSJ says, the sixth-highest quarterly total ever. S&P analysts expect the trend to have continued in the third quarter.

Since 2008, corporate profits increased 10 percent -- but revenue was down 6 percent, the WSJ says. To achieve the impressive quarterly results, companies have had, as the WSJ puts it, to "streamline" their operations. This means firing workers, outsourcing labor and shuttering unprofitable (or less profitable) divisions.

The robust state of corporate profits presents a paradox: companies won't spend their money until the economy improves, but the economy won't improve until they spend their money. An increase in hiring, for example, would help drive a recovery. The New York Times reports this "chicken-and-egg" phenomenon, noting that near-zero interest rates have encouraged companies to borrow money and simply hoard it because, as the NYT puts it, "they can." Combined, companies have $1.6 trillion in cash, the paper notes. In the first quarter of this year, their cash reserves represented the highest percentage of assets since 1964.

"They are still holding on to more cash in the same way that Noah built the ark," Gluskin Sheff chief economist David Rosenberg told the NYT.

As HuffPost's Shahien Nasiripour reported in August, bank profits during the second quarter rose 21 percent to almost $22 billion, the highest level in three years.

All these corporate profits came as the country as a whole got poorer. The net worth of households and non-profits dropped 2.8 percent during the second quarter to $53.5 trillion, erasing two quarters of gains. The figure hadn't been that low since the third quarter of 2009.

[prolesunited]

1. High unemployment is their dream

Threaten anyone who doesn't want to work 60-hour weeks for crap wages.

[Selatius]

2. This is unsustainable, especially if it comes at the cost of depleting everybody else's wealth.

If wealth inequality doesn't stop getting worse, there will be a day when the US is going to resemble a banana republic with an extremely small number of people with vast wealth ruling over a desperately poor population.

[Jackpine Radical]

5. "Someday?"

After what I heard phone banking for Feingold the other day, I'd say it's here, at least for a lot of people.

[raccoon]

6. Elucidate, my dear Watson. nt

[Jackpine Radical]

8. I heard a lot of stories from really desperate people.

99'ers, chronically ill people with high deductibles that make their health insurance unusable, people getting their houses foreclosed--and that was all just in one afternoon of making calls for Russ. Try telling someone whose unemployment has run out that Obama created jobs somewhere, just not here. And the Republicans blocked more jobs from being created (also somewhere else). Try telling the sick person that health care reform will be there in three years, and there might be some subsidy help for her deductible then.

[Hannah Bell]

10. "if"? that's how they make their money.

[Warren Stupidity]

3. outsourcing and cost shifting our way to prosperity!

Go Plutocracy!

[Enrique]

4. not enough!

work harder, everyone! And give us tax cuts!

[Jackpine Radical]

7. Tax cuts, bullshit!

We want subsidies. Useless old people are spending Social Security money that should be ours. Cut them off and pay us not to produce.

[Lorien]

9. "Cost cutting"= outsourcing and slashing pay/ salaries 40%

I'm working twice as hard for far less than I made in 1990. That goes for many of my friends, too. And most of the salaried workers I know (who haven't been laid off) are now either working part time or have taken up to a 40% pay cut...NOT because the companies they work for are in trouble, but because the companies used the recession as an excuse to slash worker pay for all but the top executives in the corporations.

[maryf]

11. All these corporate profits came as the country as a whole got poorer

Capitalism in a nutshell...smash that nut! on edit: K&R!

[ThomWV]

12. Then, in the absence of reinvestment of profits, where are the dividends?

If this is the case then one would expect a large increase in the quarterly dividends paid by those companies which are enjoying this great surge of profit - unless the money is being reinvested into the companies in the form of capital equipment purchases or its going into the pockets of the operators (CEOs and Boards).