Corporate Profits Return to Record Levels by Cutting Down on Labor Costs

U.S. Corporate Profits Return to Record Levels

March 1, 2011

World Socialist Web Site - While millions of Americans confront the daily miseries of unemployment, home foreclosure and poverty as a result of the economic crisis, corporate profits are soaring.

Walmart, the world’s largest retail chain, announced last week that its profits grew by 27 percent in the fourth quarter of 2010, while sales at US stores have declined for the second year in a row. The company made $6 billion in profits in the fourth quarter, up from $4.8 billion a year before and $3.5 billion in the third quarter of 2010.

Home Depot posted a 72 percent increase in profits, after sales increased by 3.8 percent in the fourth quarter. Profits reached $587 million, up from $342 million a year earlier.

Hundreds of companies have posted similar figures. The story is the same: sales and revenues have fallen or ticked up slightly, while profits have grown by double digits.

The discrepancy between revenues and profits is due to the fact that the “recovery” in corporate balance sheets is built on layoffs and speedup.

“A lot of the recent profits are based on the revenue from cost-cutting,” said James L. Butkeiwiz, professor of economics at the University of Delaware, in a telephone interview.

Walmart, for instance, cut over 11,000 jobs at its Sam’s Club warehouse stores in January 2010, about 10 percent of the subsidiary’s workforce. Home Depot cut 7,000 jobs in 2009 and shuttered 34 of its Expo home design stores in 2009.

Corporate profits reached an annual rate of $1.659 trillion in the third quarter of 2010, and it is possible that fourth quarter profits, which have not yet been aggregated, were even higher.

As a result of these record profits, companies have found themselves with huge stockpiles of cash. US corporations had a record $1.93 trillion in cash and similar assets in December, the last time figures were released.

Instead of investing, companies have used this cash to buy back their own stocks, enriching executives and shareholders without creating jobs. In January 2011, stock buybacks reached their highest level since the start of the economic downturn. That month, companies bought back $57 billion in shares, compared to $357 billion for all of last year, according to Trimtabs, the finance data company.

Intel, the maker of computer chips, announced the largest buyback thus far, amounting to $10 billion, on January 24. Within two weeks, Pfizer, the pharmaceutical company, and media conglomerate Time Warner each followed with $5 billion.

Trimtabs said that buyback activity was up by 25 percent in the fourth quarter over the third, reaching an average of $1.7 billion daily.

“Companies have a lot of cash and they don’t feel very confident in investing it,” said Vincent Deluard, the company’s executive vice president, in a telephone interview.

Compared to boosting dividends, the more traditional method of disbursing excess cash, stock buybacks are preferred by executives because they increase the values of their own existing shares.

“Stock buybacks benefit executives,” said Charles Elson, a professor of corporate governance at the University of Delaware. “If they have options, then a buyback is significantly more favorable than just paying dividends.”

Aggressive wage cuts, together with layoffs and speedup, have resulted in drastic increases in labor productivity, which grew by 6 percent in 2010 following similar gains the previous year.

“Firms have maintained productivity by laying off workers, and they’re not willing to hire,” said Dr. Butkeiwicz. “Often, productivity falls in recessions, but it hasn’t this time around.”

As a result, corporations have managed to increase productivity while cutting output.

“Companies have to be happy, there’s no question about that,” Butkeiwicz said. “They’ve got to do something with their money, so they’re just buying back stock.”

In the face of an economic crisis that has led to at least 8 million layoffs and over 6 million home foreclosures, by its own estimates the Obama administration’s programs have created 586,340 jobs, only about one 16th of those lost since the beginning of the recession. High unemployment is in fact a deliberate policy, aimed at providing a rapid recovery in corporate profits at the expense of workers.

This policy is manifest most clearly at General Motors, which posted its first annual profit since 2004 last week. The company made $4.7 billion for the year, the most since 1999, in a dramatic return to profitability.

This was the direct outcome of the Obama administration’s restructuring program, in which the government insisted that workers take major concessions. The contract forced onto auto workers in 2009 drastically increased the proportion of workers making $14 per hour, half the previous wage, combined with thousands of layoffs.

This White House-managed corporate restructuring, initiated in early 2009, opened the floodgates for other companies to take similar measures on their own initiative, using the economic crisis to lay off thousands and impose speedup and wage cuts on those who remained.

Two years after the process started, the end result is clear: millions unemployed, millions in foreclosure, and record corporate profits.

Companies Strive to Help Employees Manage Workloads

March 7, 2011

PRWeb - More than two years after organizations began to reduce staffing levels, employers are faced with the pressing challenge of helping workers manage larger workloads, according to Right Management. Right Management is the talent and career management expert within Manpower, the global leader in innovative workforce solutions.

The firm completed an online survey of 443 U.S. workers and found that 71% report that their burden had increased as a result of layoffs. In fact, 54% said their workload had increased "a lot." The findings are similar to a survey conducted by Right Management a year earlier when 79% of workers indicated their workload had gotten heavier.

"Today's workplace continues to require great efficiencies and sustained productivity. This means that workloads continue to be heavy for most employees which presents some real challenges for employers," said George Herrmann, Right Management Executive Vice President Americas.

"Senior managers have sought to manage the transition to leaner staffing by asking workers to step up and make greater contributions. The evidence is that workers have generally responded cooperatively to these moves up to this point."

Herrmann warned, however, that organizations risk losing their hard-fought productivity gains if they continue to ignore the pressures employees are under and assume the status quo will continue unabated.

"In many cases, workers feel like they have hit maximum capacity and are approaching burnout. Such feelings must be acknowledged and addressed. Where possible, try to ease undue stress through frequent communication and engaging employees to find new approaches and solutions to getting work done. Eliminating non value-added activities and eliminating needless bureaucratic irritants can also demonstrate a true commitment to employees in a difficult environment. Keeping the best talent in the organization should be a primary goal here."

According to Herrmann, the most effective strategies were based on communications and candor.

"These were companies that were frank to acknowledge the increased workloads and sought to instill a spirit of collaboration during tough times. They also went to lengths to help their employees acquire new skills and engaged them in a continuing dialog to foster a mutual understanding between workers and leaders."

All the same, leaner staffing remains a continuing test for most companies, Herrmann said.

"In the near term, organizations may demand extra effort and sacrifice in the workplace, but as the economy picks up, employee patience or expectations may change. And if employee cooperation and loyalty decline, then disengagement will surely rise as well turnover."

Right Management surveyed 443 individuals via its web site between January 15 and February 14, 2011.

Unemployment Falls to 8.9% as “Conservative” Jobs Recovery Continues But Wages Stagnate

March 4, 2011

Yahoo Finance - The Bureau of Labor Statistics Friday morning said 192,000 payroll jobs were created in February and the unemployment rate slipped to 8.9 percent, the first time it has dipped below 9.0 percent since April 2009.

Here are four quick takeaways from the report:

Public/Private Partnership? What might be called a "conservative jobs recovery" continues. Government actions and spending may have helped stop the panic in 2009. But this expansion has been led largely by the private sector.

Every month, companies add jobs while the public sector cuts them. Governments at all levels cut 30,000 jobs last month — 12,000 at the state level and 18,000 at the city level.

As BLS notes,

"Local government has lost 377,000 jobs since its peak in September 2008."

As seen by the drama unfolding in state capitals around the country, this is likely to be a continuing trend. Employment growth is now occurring in spite of government spending, not because of it.

Inflation? What inflation? In this recovery, companies have done a fantastic job containing costs, even as prices of key commodities (gas, grains, metals) have risen. They've done so in part by clamping down on labor costs.

In the fourth quarter, as BLS reported earlier this week, productivity grew at an impressive 2.6 percent annual rate and labor unit costs fell 0.6 percent. Translation: Employers are getting more out of their workers for less.

Despite the gains in jobs in recent months and the decline in the unemployment rate, there's still a lot of slack in the labor market: 13.7 million Americans remain unemployed and the so-called real unemployment rate is still a hefty 15.9%. Add in the continuing decline of labor unions, and workers across the board are having a tough time getting higher wages and benefits from employers. And so in February, average hourly earnings rose by a single penny, to $22.87, from $22.86 in January. In the past year, average hourly earnings are up just 1.7 percent.

Making stuff. It may go noticed on the coasts, but the U.S. economy still produces lots of stuff. The Federal Reserve's data show that industrial production rose 5.2 percent in the past year, and that more of America's industrial capacity is being put to use. The nation's largest manufacturing sector — autos — is in far better shape than it was a year ago.

So it's not surprising that the long-suffering manufacturing sector added 33,000 jobs in February, with the durable goods sector leading the way. Since December 2009, manufacturing jobs have increased by 195,000.

The Rear-Window Recovery. Official government data on the economy is always backward-looking. But the monthly jobs report is particularly backward-looking. The monthly number is reported, then revised in each of the two following months. As is frequently the case when the economy is gaining momentum, the trend has been for prior months' totals to be revised upwards.

Originally reported in January as 103,000, the December payroll number was revised up to 121,000 in February. Today, BLS concluded that 152,000 jobs were created last December. The original January number, a disappointing 36,000, was revised up to 63,000, and is likely to be revised up again next month.

In other words, BLS discovered that an extra 45,000 jobs were created in December and January. Should that trend continue, this decent jobs report will look significantly better when BLS provides the next snapshot of the labor market in early April.

Silicon Valley Jobless Rate Rises in January; Employers Make Seasonal Cuts

March 4, 2011

Mercury News - Silicon Valley's jobless rate climbed in January from the month before as employers trimmed seasonal jobs, the state Employment Development Department reported today.

The report for Silicon Valley came on the same day the U.S. Labor Department reported national job numbers for February. Nationwide, employers added 192,000 jobs and the unemployment rate dropped slightly to 8.9 percent. Unlike the local data from the state, the national job numbers are seasonally adjusted.

In Santa Clara County -- the hub of Silicon Valley's tech industry -- and mostly agricultural San Benito County, employers cut 11,900 jobs last month, including big reductions in the retail; leisure and hospitality; and professional and business services sectors. However, computer and electronics manufacturers added 700 jobs.

The combined jobless rate for the two counties was 10.8 percent, up from a revised 10.6 percent in December.

The total number of jobs in the San Jose-Sunnyvale-Santa Clara metro area was 857,000, up 1.7 percent from January 2010. Year over year, Silicon Valley added jobs in sectors including professional and business services; information; private educational and health services; and computer and semiconductor manufacturing. However, government employers cut 4,700 jobs.