Global Economics

U.S. Companies Remain Wary of Hiring


U.S. Companies Remain Wary of Hiring

Illustration by Erik Marinovich

Consumers in the U.S. are more confident about the economy, and housing is showing signs of life. Companies in the Standard & Poor’s 500-stock index, excluding banks and utilities, are rolling in cash: $1.01 trillion in the first three months of 2012, a near record. So it wouldn’t be far-fetched for American companies to take advantage of these developments in a traditional expression of confidence. You know, hiring.

Yet it doesn’t look like that’s going to happen anytime soon. The share of U.S. chief executive officers planning to add employees or expand investment during the next six months declined in the third quarter. And according to a Business Roundtable survey, an even larger number said they planned to cut jobs and spending.

FedEx’s Smith had to cut his annual profit forecastJim Lo Scalzo/BloombergFedEx’s Smith had to cut his annual profit forecast

It’s not hard to divine what is spooking companies. Despite gains in consumer sentiment, revenue continues to be weak. Sales for businesses in the S&P 500 fell a projected 0.9 percent in the third quarter from a year earlier. Without revenue growth, earnings are under pressure. “Companies are trying to protect profit margins as best they can, so they’ll be very guarded” in hiring and capital expenditures, says Michael Mullaney, chief investment officer of Fiduciary Trust in Boston. That’s why he’s picked Colgate-Palmolive (CL), the world’s largest toothpaste maker, as a stock to hold. Even if companies aren’t hiring, he says, people still have to brush their teeth.

“Cost controls are one of the key reasons job growth remains relatively weak,” says Charles Lieberman, chief investment officer at Advisors Capital Management in Hasbrouck Heights, N.J., and former head of monetary analysis at the Federal Reserve Bank of New York. Companies will avoid hiring until orders for their products have strengthened and “they cannot meet demand with their existing workforce,” he says. The jobless rate rose to an estimated 8.2 percent from 8.1 percent in August. That marks the 44th consecutive month it’s exceeded 8 percent, the longest streak on record since 1948.

Some big companies have decided to accelerate or expand payroll cuts they’d previously announced. Bank of America (BAC), the second-biggest U.S. lender, is speeding up a 2011 plan to trim $8 billion in expenses and more than 30,000 jobs. Hewlett-Packard (HPQ), the world’s largest PC maker, will slash 29,000 jobs instead of the 27,000 it announced in May. Staples (SPLS) is accelerating its shutdown of 15 U.S. stores as consumers are using fewer traditional office products such as folders. Financial firms’ U.S. job postings fell 17 percent to 1,373 in September from a year earlier, data compiled by Bloomberg show, and Meredith Whitney, banking analyst and founder of Meredith Whitney Advisory Group, predicts they’re not done paring staff. “There’s going to be another round of 50,000 to 100,000 layoffs” in the securities industry, Whitney said on Sept. 19.

FedEx (FDX), an economic bellwether because it ships goods from financial documents to electronics worldwide, cut its annual profit forecast in September due to slowing demand and customers’ shift to cheaper delivery services. The Memphis-based company, which in August said it would offer workers voluntary buyouts, will unveil details on more streamlining moves on Oct. 9. “We intend to take a significant amount of cost out of the Express system,” CEO Frederick Smith said on a Sept. 18 conference call.

“The headwinds we’re flying into will likely dominate in the next few months,” says Harry Holzer, a public policy professor at Georgetown University and former chief economist at the Department of Labor. There’s uncertainty about the fiscal cliff, as well as the recent drop in exports. In addition to corporate cutbacks, “the public sectors at the state and local levels continue to shed jobs,” says Holzer. “A real turnaround from recent months—that is, something well over 150,000 [jobs added per month] for the rest of the year—is unlikely,” he says.

This corporate pessimism poses a hurdle for household spending, which accounts for about 70 percent of U.S. gross domestic product. Consumers are workers, after all, and if they can’t get hired or fear getting laid off, they will limit their purchases. At the same time, other pillars of growth are starting to weaken. Orders for durable goods other than transportation equipment dropped in August for a third consecutive month, signaling slowing business investment. Federal Reserve data show factory activity in the Philadelphia and New York regions shrank in September, even though manufacturing nationwide unexpectedly expanded, with the Institute for Supply Management’s factory index rising to 51.5 from 49.6 in August (measures above 50 represent expansion). While “this report removes some of the concern” that manufacturing is contracting, “overall, we’re looking at economic growth that’s moderate but not enough to bring down the unemployment rate significantly,” says Gus Faucher, a senior economist at PNC Financial Services Group.

These risks to growth help explain why Fed policymakers announced on Sept. 13 their third round of large-scale bond purchases since 2008 to keep long-term interest rates low. Chairman Ben Bernanke for the first time pledged that the central bank will buy bonds until the economy gets closer to his goals, signaling that the battle against unemployment has eclipsed concerns about inflation for now. “This is a Main Street policy, because what we’re about here is trying to get jobs going,” Bernanke said at a news conference after the Fed meeting in Washington. “We’re trying to meet our maximum-employment mandate.”

The U.S. has so far recovered only 4.1 million of the 8.8 million jobs lost as a result of the 18-month recession. It will take until the end of 2014 for the unemployment rate to fall to 7 percent, Charles Evans, president of the Federal Reserve Bank of Chicago, told reporters on Sept. 26 in Hammond, Ind. The economy would need gains of 200,000 to 250,000 jobs each month for “several months” before the Fed can even revisit its policy of super-low rates, he added.

Toya Coverson, 35, of Atlanta, lost her $11.50-an-hour job as a security guard two months ago and is concerned about landing another spot after hearing of the business cutbacks. “It means there are more people looking for work and not that many jobs,” says Coverson, who hasn’t had an interview though she’s applied for about 20 openings. “There is going to be fierce competition.”

The bottom line: U.S. CEOs still don’t see a recovery strong enough to trigger more hiring and investment.

Chandra is a reporter for Bloomberg News in Washington.
Matthews is a reporter for Bloomberg News in Atlanta.

Later, Baby
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Companies Mentioned

  • CL
    (Colgate-Palmolive Co)
    • $65.87 USD
    • -0.49
    • -0.74%
  • BAC
    (Bank of America Corp)
    • $16.37 USD
    • 0.08
    • 0.49%
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