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Corporate Profits Return To Prerecession Levels, But Job Growth And Investment Remain Weak

Posted: 05/04/2012 5:03 pm Updated: 05/05/2012 4:09 pm

Corporate Profits Jobs
Job hunters wait to meet with a recruiter at a San Francisco job fair.

It's a good time to be an American corporate executive, but not such a great time to be a job seeker.

That's because U.S. corporate profits have returned to prerecession levels, but hiring and investment have not, according to a report by the International Institute for Labour Studies released on Friday. Corporate profits, which keep hitting all-time highs, are back to their prerecession levels of about 15 percent of gross domestic product, according to the report.

Record company profits have come at the expense of investment and hiring, according to the report. Business investment is now hovering at about 16.5 percent of GDP -- far below the prerecession average of 20 percent, according to the institute. Corporations are holding onto an "unprecedented" amount of cash because of lingering concerns about the economy's weakness, the report stated.

U.S. employers added just 115,000 jobs in April, the Labor Department reported on Friday. These additions are keeping up with the population's growth but not making up for the 11.6 million jobs lost as a result of the recession, according to economists. The labor force participation rate plunged to its lowest level since 1981: 63.6 percent.

Kathy Bostjancic, director for macroeconomic analysis at the Conference Board, said in an interview with The Huffington Post on Friday that investment spending has been "among the slowest we've seen."

But corporate executives are in a "prisoner's dilemma," she said: Though corporations would benefit from the strengthening economy that would result if they all started investing and hiring at the same time, company officials are nervous about blazing a trail out in the open.

"It's very difficult to stand out like that and to be bold because if no one else is doing it, and you're proven wrong, you could be penalized," Bostjancic said. "If the economy does turn down, then you've over-hired, you've over-invested."

Even without hiring many more workers, companies have still managed to profit. That's because major corporations have been squeezing more out of their employees while letting their workers' inflation-adjusted wages fall. Meanwhile, worker productivity has spiked over the past few years as employees worked harder.

"Most of the productivity gains have gone to corporate America and stock prices," Bostjancic said. "The income gains are going more to corporate America and the top line than they are going to the worker."

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