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

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.

Comments

[Mark Ellsworth]

10:16 PM on 10/10/2010

I don't understand - what are the Republicans complaining about? It appears the secret plan is to not hire anyone until after the mid-term elections, but with this economic trend, why bother? Scare your workforce into high productivity, pay little or no corporates taxes and get even richer! They should be praising Obama, not cursing him!

[Alexandra Mandelis]

01:11 AM on 10/07/2010

"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."

And therein lies the paradox. Employees will spend their wages, from buying bread at the local bakery to investing in stock options, if they have the means.

The business sector and the government can't expect workers to start spending again until they are confident in full-time, long-term/permanent employment.

[Rich Walden]

10:34 PM on 10/06/2010

Socialism for corporations is working fabulously!

[Alexandra Mandelis]

01:13 AM on 10/07/2010

Yes.

Rest assured, corporate welfare/tax evasion is a big part of these corporations' record assets.

[F Grey Parker]

12:07 PM on 10/06/2010

I wish I was surprised. I responded to WSJ piece at my blog.

http://handthatfeedsyou.blogspot.com/2010/10/enemy-of-growth.html

[pattileigh]

10:40 AM on 10/06/2010

More money for them and now they have even more power. Tax them!

[Mr MOTO]

08:41 AM on 10/06/2010

If I've said it once, I've said it 100 times: CONFIDENCE. It takes consumer confidence to turn this economy around. Since there has been no leadership over the last 3 years, we're going to have to do it ourselves.

"Retailers should see their best Christmas sales in 4 years" http://tiny.cc/9h1ac

Why It's A Great Time To Be In Sales! http://wp.me/pIXu5-C in

[Dww2112]

08:29 AM on 10/06/2010

The Post Citizen's United Preamble: " We the privileged, in order to shape a more exploitable citizenry, concentrate wealth and ensure economic inequality, provide for the corporate excess, promote the general despair, and secure the blessings of heredity to ourslves and our posterity, do ordain and establish the mission statement for the United Corporations of America!"

[dragonladywaltham]

11:45 PM on 10/05/2010

This is why unemployment is still high. Corporations are making too much money to put America first. It's a Republican thing.

[nomoredead]

09:57 PM on 10/05/2010

Looks like a major recovery for businesses under Obama.

[Wombaticus]

08:48 PM on 10/05/2010

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

Tell me again about how there is no war of Corporations VS the Humans.

[Duppy]

07:39 PM on 10/05/2010

Of course the Wall Street and Corporate geniuses at work. Here is the formula and there is nothing genius about it: Cut/slash employees, borrow at almost zero interest rate, charge customers high fees, post big profits and take home big bonuses.

There is nothing genius about this formula. Any 2 year old can do that job !

[OldTulsan]

07:23 PM on 10/05/2010

http://www.commondreams.org/view/2010/09/29-11
Memo to Labor Movement: Follow UE's Lead and Fight Corporate Outsourcing | CommonDreams.org

"...In the case of Haskon, the plant targeted for closing has been a consistent money-maker for Esterline Technologies, based in Bellevue, Wash. The company has been a major defense contractor and the beneficiary of at least $66.9 million in taxpayer dollars from 2000 to 2009. This stream of tax dollars was very helpful in pumping up Esterline’s net earnings to $119.8 million last year. The federal contracts also helped Esterline CEO Robert W. Cremin to cream off $6,731,506 in total compensation in 2009. CFO magazine recently reported, “the company's defense contracts assure it a solid base of revenue for years to come."

Yet Esterline—the beneficiary of so much taxpayer-provided revenue, is moving rapidly to shut down Haskon, which has been producing sophisticated silicone gaskets and door-seals for all the major airplane manufacturers and the federal government for the past 80 years. Esterline will thereby add 100 more people to the ranks of the jobless in Taunton, a city of 56,000 where the unemployment rate is already at 9.9%.

[snip]

The struggle to save jobs at Haskon is precisely the kind of fight in which labor needs to invest enormous resources. Clearly, putting all of labor’s eggs in the Democratic basket is one investment that has not paid off."

[kfreed]

06:20 PM on 10/05/2010

The perfect argument then for "phasing out" corporate subsidies, rescinding no-bid contracts, and restoring tax rates for the wealthy to pre-Bush era levels. Tax corporations that ship jobs overseas and tax the products they ship back for sale in the U.S. Create government jobs within the IRS and get after those offshore accounts and unpaid tax bills.

Then use that money to create jobs and invest in a green economy.

If they no longer have any interest in the wellbeing of their country, then there is no reason that their country should have any interest in them.

[Cimms]

06:17 PM on 10/05/2010

Let's give them another big ol' tax cut. That will fix it. Everyone knows if they have more money they will spend more money......

[forty8r]

05:45 PM on 10/05/2010

Its time to tax corporations on worldwide income. They are destroying America by job cuts and exporting jobs overseas. We are supporting them be having a hugh far flung military to support their economic interests.