Jan. 9: To gaze upon the world of American corporations is to see a sunny place of terrific profits and princely bonuses. American businesses reported that third-quarter profits in 2010 rose at an annual rate of $1.659 trillion, the steepest annual surge since officials began tracking such matters 60 years ago. It was the seventh consecutive quarter in which corporate profits climbed.
Staring at such balance sheets, you might almost forget that much of the nation lives under slate-gray fiscal skies, a place of 9.4 per cent unemployment and record levels of foreclosures and indebtedness.
And therein lies the enduring mystery of this great recession and not so great recovery — Why have corporate profits (and that market thermometer, the Dow) spiked even as 15 million Americans remain mired in unemployment, a number without precedent since the Great Depression? Employment tends to lag a touch behind profit growth, but history offers few parallels to what is happening today.
“Usually the business cycle is a rising-and-falling, all-boats-together phenomenon,” noted Mr J. Bradford DeLong, an economics professor at the University of California, Berkeley, and a deputy assistant secretary for economic policy in the Clinton Treasury Department. “It’s quite a puzzle when you have this disjunction between profits on the one hand and unemployment.”
A search for answers leads in several directions. The bulls’ explanation, heard with more frequency these days, has the virtue of being straightforward — corporate profits are the economy’s pressure cooker, building and building toward an explosive burst that will lead to much hiring next year.
The December jobs numbers suggest that that moment has yet to arrive, as the nation added just 1,03,000 jobs, or less than the number needed to keep pace with population growth. The leisure industry and hospitals accounted for 83,000 jobs; large corporations added a tiny fraction.
Consumers appear to have put a toe or two back into the water, as holiday spending rose (although it fell short of analysts’ forecasts) and families began to replace the ailing refrigerator or the ageing minivan. Car sales are rising.
But relatively few economists, even those who see signs of an improving economy, sound particularly buoyant, a concern shared by liberals and conservatives alike.
Jobless recoveries followed on the heels of the last two recessions, but neither prefigured the depth of the trouble this time. After the 1990-91 recession, it took 23 months to add back the jobs lost. After the 2001 recession, it took 38 months.
At the current rate, the economy will need 72 to 90 months to recapture the jobs lost during the Great Recession. And that does not account for the five million jobs needed to keep pace with a growing population.
None of this has slowed the unprecedented rise in corporate profits. The reasons are many.
More so than in the past, many American-based corporations earn a great portion of their profits overseas. And thanks to porous tax laws, these companies return fewer of those profits to American shores than in the past.