Tuesday, July 27, 2010
Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production. ... As companies this month report earnings for the second quarter, news of healthy profits has helped the stock market — the Standard & Poor’s 500-stock index is up 7% for July — but the source of those gains raises deep questions about the sustainability of the growth, as well as the fate of more than 14 million unemployed workers hoping to rejoin the work force as the economy recovers. ...
In some ways, the ability to raise profits in the face of declining sales is a triumph of productivity that makes the United States more globally competitive. The problem is that companies are not investing those earnings, instead letting cash pile up to levels not reached in nearly half a century. ... [E]ven at corporations where both the top and bottom lines are expanding, the focus remains on keeping profits high, not rebuilding work forces decimated by the recession.