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No Sales Means No Jobs Means No Recovery

Posted by: Howard Silverblatt on July 21, 2010

Last week U.K. scientists determined which came first: the chicken or the egg? They claim it was the chicken. But the Wall Street version is which comes first Sales or Jobs is still open. Consumers don’t want to spend because they don’t feel comfortable about the future, specifically the economy and their job; companies won’t expand - add to plants, spend on capital expenditure, hire workers (full or part time, even extending hours) until their sales pick up. From the company’s viewpoint, why invest to produce more when you aren’t even selling everything you are making now, especially if their earnings are doing well (not to mention they have more cash on hand then at anytime in history). From the consumer’s side, even those who feel secure with their job are watching their bottom line, and money remains tight (and don’t even look at your retirement holdings or benefits). So how do you break the downward cycle of ‘I won’t spend’ therefore ‘I won’t build’? For starters there were the jump start stimulus programs. But here we are trillions later and no jobs. Maybe it would have been worse, maybe we just need more stimuli or maybe we’re just feeding a junkie. Pick a theory, stand at Broad and Wall and preach it. But whatever we’re doing, wherever we are in the process, it hasn’t worked yet, and Americans aren’t known for their patience. So if we don’t start to see some actual improvements soon the tie goes to the down side, and time is not on our side. I’m not looking for a home run, just someone on base would be nice - something to root for.

The above commentary is mine of course, and not part of my earnings review below, but the two do appear to be blending. Maybe I need to step back and look for bias in my reporting, or maybe a 38% increase in earnings isn’t the whole story.

As of last night we had 24.9% of the Q2 earnings reported. So far, the Q2 2010 earnings results are encouraging at first glance. Based on the issues that have actually reported, earnings are 14.5% ahead of estimates, with 65.8% of the issues beating their estimate. Sales, however, are a different story. While 73.4% of the issues have beaten their sales estimate, the “beat” is only slight, with the overall aggregate sales coming in 4.4% ahead of estimates - far less than the 14.5% for earnings. The earning growth over last year’s Q2 2009 is equally impressive, with earnings 38.4% ahead (excluding Citigroup which had a massive loss last year), but sales are a disappointing 6.7% ahead. Anyway you cut it - sales just aren’t cutting it.

I believe comparisons should focus on quarter-over-quarter results to determine the recovery’s progress, as well as the underlying momentum of the economy. And since I believe jobs are number one, and given that companies are generally in good financial shape with excess cash so they can ride out any short term disruption, I look to sales as a future indicator. On this basis, earnings are running ahead of Q1 2010, but sales are flat, and that’s the problem. It’s great that companies have improving earnings, but those improvements are due to high margins, which were the product of cost cuts - specifically job reductions, the very thing that we need to improve now. Until companies and consumers start to spend more, the job front will not get better, but they won’t spend more until they believe things are getting better. The stimulus programs were suppose to jump start the economy and break the downward cycle by convincing both groups that better times were here. But so far we’re not seeing the sales or the jobs; but earnings are good, at least for now.

Reader Comments


July 21, 2010 9:58 AM

Two things to add to this article which makes a very valid point: One, there are jobs out there unfortunately for us the jobs are all over the heads of the common underskilled workers of today. A GED won't get it today. Secondly, descretionary spending is getting eaten up with inflation on consumable goods that are starting to get really expensive such as meats, gas, utilities. Wages have stagnated and will continue to put pressure on middle class earners(spenders) for anything discretionary. But Lord knows we are trying. Afterall, our kids have to see the latest 3D movie or have the next biggest thing, and they grow out of their clothes.
Many workers today are now having to really weigh the ability to continue to contribute to unmatched 401Ks, and devaluation of our assets.
But, spending at a subsistance level will continue to look good on paper with inflation and those with money to invest will make money in the long run.

Hugo van Randwyck

July 21, 2010 10:49 AM

The housing bubble hasn't unwound fully. Let house prices fall quicker, from average $160,000 to $80,000 - then you will see new homebuyers have a huge increase in dispoable income to go and buy products and services. Same with lower rents helping. The mis-allocation of capital seems to be not only a socialist problem, but also a capitalist problem, when politicians favour banks and letting them have un-earned profits on double house prices, for no increase in value, to justify the higher housing cost. Having TARP banks also publish mark-to-market financial accounts and de-merging them into separate state banks that sink or swim, and then flood the market with foreclosed houses, would speed up price falls - and the recovery and job creation.

Dr. Frank Leibold, PhD

July 21, 2010 11:07 AM

Where Have All The Jobs Gone?

Frank B. Leibold, PhD. ,July 21,2010

Increasingly newspaper headlines across America are asking this question.

In addition to cutting jobs due to the recession and to increase profitability, companies are looking overseas to save money in labor costs. And there are those who feel that the US economy has 'absorbed' the current unemployment level through innovation, re-structuring and productivity gains. With 70 million baby-boomers ready to retire the workforce is at its peak to accomplish this. In my view these 15 million underemployed jobs are structurally gone! The Labor Department's DLS indicates that there are six job seekers for each job opening – a historical high.

According to Forrester Research, over the next fifteen years over three million US service industry jobs and up to $136 billion in wages will move overseas to countries including India, Russia, China and the Philippines. Forrester also notes that 88 percent of the firms said they got better value for their money overseas and 71 percent said overseas workers did better quality work.
A Deloitte Research survey reports that the world's 100 largest financial-services companies expect to transfer about $356 billion of their operations and two million jobs offshore over the next five years. It's not just technology jobs that are leaving the United States. Jobs in just about every sector are going abroad including mortgage processors, claims adjusters, financial analysts, telemarketers and a variety of other job titles.

Protecting American Jobs
What can be done to protect American jobs? One suggestion is to remove tax incentives to American firms that are shifting jobs. Former presidential candidate, John Kerry, said in an AFL-CIO interview that "...companies move offshore simply to avoid paying American taxes, yet they still get all of the same benefits, including government contracts. We should penalize these companies and deny them government contracts."

In addition, labor unions and technical worker alliances are lobbying Congress. While states, including New Jersey, North Carolina and South Carolina, are considering legislation to prevent tax-payer funded jobs from being shifted overseas.

Closing America's Global Skills Gap

Many American companies find themselves ill-equipped to grow because of a lack of skilled workers according 2005 report by the National Association of Manufactures The Growing Skills Gap. Interestingly, the skill gap is no longer in the high technology area but rather in workplace attitudes of dependability, attendance and the basic skills of the 3 R's. But the skill gap is also not just a "large manufacturing company" problem. A 2002 U. S. Chamber of Commerce report Keeping Competitive indicates that 73 percent of surveyed small companies with less that 50 employees are experiencing "severe" or "very severe" problems in hiring qualified workers. The study also indicated that 40 percent of all job applicants had "poor or no employment skills." So those going from high school directly into the workforce (80 percent) don't have adequate global skills.

The National Business Alliance (NBA) co-sponsored, along with the American Council on Education (ACE), the Business Higher Education Forum (BHEF), a group of CEO's and university chancellors examining and speaking jointly on issues of national concern. The BHEF has issued three reports Spanning the Chasm: Corporate and Academic Cooperation to Improve Workforce Preparation , Spanning the Chasm:A Blueprint for Action and in 2008 Corporate Investment in College Readiness and Access. All three focus on the connection between higher education and the world of work, specifically how well the linkage works for employers, graduates, and institutions. America's competitive edge in the 21st century global economy will greatly depend on a healthy spirit of collaboration between business and higher education as colleges and universities prepare graduates to take their place in the nation's workforce.

The American Council on Education indicated in 2002 that “the quality of the nation’s elementary and secondary schooling is inadequate to meet the needs of the 21st century.” The US Department of Education’s 2001-2002 biennial survey of over 35,000 faculty at 358 American colleges disturbingly revealed that the surveyed faculty believed that only 32 percent of new students are academically prepared for college.

In 2003 ASTD issued a white paper titled The Human Capital Challenge. It indicated “now more than ever the success of public and private organizations in the United States depends on the knowledge and capabilities of their employees.” Followed in 2006 by ASTD’s Bridging the Skill Gap, which focused on talent management and the coordination required between training and human resources to develop lacking 21st century skills in the workforce.

In 2005, Deloitte Consulting surveyed human resource executives nationwide and more than 70 percent of the 123 respondents said incoming workers with inadequate skills pose the greatest threat to business performance over the next three years, followed by baby boomer retirement (61 percent) and the inability to retain key talent (55 percent). They also found that respondents indicated that they expect to lose 11 percent of their workforce by 2008 due to boomers’ early retirement at 62. These findings are highlighted in the Deloitte Research report It’s 2008:Do you Know Where Your Talent Is?

This American 'awakening' of the lack of competitive global skills and how damaging it is to our international competitiveness has been most recently addressed by US president - Barak OBama, when he addressed the nation to discuss his 2009-2010 budget and the national priorities of his administration. “The only way we can compete globally is to provide our young people with a world class education,” he said. Unfortunately, we have only made marginal progress as a nation in the last two decades since the problem has been documented, and its cause has been squarely place on America's public school system. The president is pushing for not only higher standards but longer school periods - “the Japanese have had longer school days – including Saturdays, for over two decades.”

The accelerating trend towards an increasing number of careers and job changes is then explored which leads to the need for LTCs. Invented Here: The Report on the Future of the South, issued by the Southern Governors Association (SGA) says, "A regions performance in the knowledge economy can rise no higher than the sum of the knowledge of its people." At a recent conference concerning human capital strategies held by SGA, the U. S. presidents of Mercedes Benz, Toyota, and Michelin spoke on their rural Southern workforce. Their factory workers make $60 to 85,000 a year managing computer integrated manufacturing lines that control robots at several work stations. Employees rotate jobs on a daily and monthly basis, meaning that workers need to know how to perform eight to ten different jobs. The skills these workers need to succeed are related to their knowledge and conceptual talents. Success in the new technology-driven economy will require new skills and competencies that allow people to perform multiple assignments; have over a dozen different jobs and five to six distinct careers - necessitating possession of universal portable 'core' competencies.

So, transferable skill-sets, or competencies, have become the new currency of success and future employability. In the near future skills defined as critical thinking, creative problem solving, communication and collaboration (the four Cs) will become even more important to organizations according to a new survey conducted by American Management Association (AMA) issued in April 2010. The AMA recommends that public education merge the four Cs with the traditional three Rs in its curriculum.

Losing America's Economic Dominance

In 2006, the US Conference Board surveyed 431 human resource managers and issued its report, Corporate Voices for Working Families, the Partnerships for 21st Century Skills. It revealed that America’s future workforce was “ill prepared” for the required 21st century skills; 70 percent of those surveyed indicated new employees had work skill deficiencies; and almost four out of ten didn’t have a high school education.

A 2006 report by the National Center on Education and the Economy (NCEE), America In The Global Economy looked at America’s last 50 years of economic dominance and concluded:

1.The US superiority came from scale, innovation and educational achievement.
2.That 5,000 companies were spending 2.7 percent of GDP on research and development..
3.Through the late 1970s, America “far exceeded” other nations in the 25-64 age bracket of those who had graduated from high school.
4.In the late 1990s we had the most college graduates.
5.From 1980-2000, 58 percent of the workforce had some college education.
6.However, by 2030, India’s population will exceed China’s, and…
7.China will have the largest economy by 2040.
8.Now Canada has proportionally the most college graduates, and shortly Russia, Norway, the Czech Republic and Japan will have more high school graduates than the US.

So America’s scale advantage will be exceeded soon by China and India and its educational advantage has slipped to sixth. Additionally in 2004, the US graduated 70,000 engineers, India over 280,000 and China greater than 800,000—potentially threatening America’s third dominance factor: innovation.

The Six LTCs

These six LTCs, are reflective of new millennium challenges. They are not traits, habits, or specific activities; but individual competencies that require a sub-set of related activities that must be mastered.

To succeed today one and one's organization must be driven by satisfying the changing customer's needs. Your customer may be either external or internal. All organizations need effective and efficient problem solvers who can utilize technology to meet the customer's need in a response time that provides a sustainable competitive advantage through added value and service. In order to perform effectively in today's multicultural society it is important to have a global perspective and cultural understanding and sensitivity. One must be motivated and persistent for the right reasons; realizing that you can increase your motivation substantially to face unforeseen future challenges. Managers must also motivate their organizations towards the same goals. The root of all effective motivation is a healthy amount of self-esteem. Managing one's career to have multiple and varied job assignments, including an international position, will develop the needed skill-sets. A formal career plan, along with feedback from candid and trusted friends for realism, and a mentor to assist you is navigating one's career moves is critical to career success. Finally, living a balanced and healthy life with time devoted to family and outside work activities are now recognized as also essential to life, and career success.

“The Conference Board's research confirms that American business finds new entrants to the workforce lacking in the skills required to be globally competitive both today and for the demands of the coming years. Frank Leibold, in his new book-“Competencies That Close America's Global Skill Gap”- recognizes and analyzes this deficit and offers individuals specific guidance on how to overcome these skill gaps. His advice is important for those just entering the workforce who may find they need skills heretofore unlearned. However, his advice may be even more critical for those more seasoned workers who are challenged by having to reinvent themselves in this new economic reality, where companies are requiring employees to take on more responsibility for their personal and professional well-being?”
-------- Mary Wright, Project Leader, Workforce Readiness Initiative,The Conference Board


Despite a $862 billion job stimulation legislation last year the slow and unsteady economic recovery has been jobless. Some claim that the uncertainties of new medical and financial legislation has prevented companies from spending an estimated $1.3 trillion. Others point to moving jobs to lower wage rate countries. I believe that the US economy has absorbed these lower manning levels through innovation, re-structuring and productivity gains. However it's clear that tomorrows jobs will require new competencies that close America's well documented global skills gap.

Frank Leibold after a distinguished 30-year business career with three multinational corporations and nine jobs-culminating in the position of Group President-re-tooled himself and obtained his PhD.. Frank then became a nationally recognized university professor of marketing while founding his own global management consulting company. He and his wife reside in South Carolina and spend time traveling to visit and spoil their nine grand-children–two in Australia. His new book: The Key To Job Success In Any Career will be published in October 2010 – excerpts form the basis for this article.

Zeilbeck Elizabeth M.

July 21, 2010 12:40 PM

The solution is to a big extend in bringing manufacuring jobs back from China and ASIA overall. And Andy Grove just dared to speak out. He got the courage. And there should not be any trade wars, because if you would ask the smart leadersheap in China, what they what do is: proctect their own jobs, try to get everybody into a job, so its just all human rights, the right for everybody to work. So, no tradewars.

You cannot de_industrialize a country, also in Europe. President Sarkozy demanded from Renault/Nissan to keep part of manurfacturing in the country.
Thats the right way to go.

Every country need to have manurfacutring and take care of building the frame to meaningful lives.

Its also the one-continetal shelf theory, being on one shelf we should ask IBM to set the new theme to figure out to bring everybody into a job. To do bottom-up-planning, what does a family need to have a middle-class life and then from there go and set all the parameters right, untill we have prosperity.


July 21, 2010 12:49 PM

The stimulus was not designed to get the economy going. It was designed to give more money to the rich. If it were truly a "stimulus plan" the money would have been given out to the people who pay taxes and spend. If the people have no money there is no spending. Pretty easy math. The rich just stuffed their new millions in a closet to find a way to avoid paying taxes. How does that help? Economics is not that difficult. If they buyer has no money, you sell nothing. Giving money to bankers helped nobody but the bankers.


July 21, 2010 5:20 PM

The problem isn't the performance of the companies themselves. As you state above, their sales are 7% ahead of where they were this time last year. And further, most companies actually beat the sales projections by 5%. The problems are all in the heads of you analysts and your 'expectations'. You all desparately wanted a 'V' shape recovery with massive demand growth. Problem was, you hadn't stated where that was going to come from. You were looking for effect, not cause. The stock markets still has expectations of massive sales growth, and has priced in stocks accordingly. In reality, the corporate earnings are stellar; they've never been so good in fact. And a 7% revenue growth rate in any normal time should be more than acceptable, in most cases that too would be considered outstanding. bear in mind, this is an across-the-entire-spectrum number, not just an individual company. So there's nothing wrong with the health of companies; there's not mcuh wrong with demand improvement; the only thing that needs recalibrating are the expectations of Wall St traders and get-rich-quick merchants.

Ike murphy

July 22, 2010 6:51 AM

I enjoyed every bitt of this article,I also belive that the best recorvery method is recorvery is quarter-over-quater.


July 22, 2010 7:35 AM

Businesses are sitting on over 1.5 trillion dollars in cash and not hiring because of sales? Most companies are not hiring -- not because of sales -- but because they just can't innovate and think out of the box anymore. Stimulate small businesses, entrepreneurs, and creativity and you will stimulate the economy.


July 23, 2010 6:43 PM

I hope people don't borrow or spend more than they make. The CEO's and executives have been lining their pockets with the wages that should have gone to the workers. It is time that the workers received some of the benefits of the economy.

Look at the CEO wages in relation to the average worker. From about 25 times to, as some reports state, over 1000 times. I tend to believe the lower figure of 300 times. This is an indication that workers have not reaped any benefits from the tax cuts or booming economy. Also compare wages to inflation. CEO's did pretty well.

As long people don't get decent wages, they cannot afford to spend. They have already maxed out their credit by just trying to stay alive. Much of the stimulus spending required people to go further into debt. Debt that they couldn't get due to their employment situation. They cannot borrow money without jobs. They cannot keep their credit cards without being able to make payments.

Trade agreements around the world need to put in place minimum wages to help the poor get a better life style and increase the markets for all businesses.

It is also time for shareholders to look at the executive wages and benefits to see how they are affecting the bottom line of the companies. If you think about some of the wages and benefits increases over the last few decades, they could hire hundreds of workers in a corporation. Workers that can be productive towards the society and the company by purchasing products and increasing share value and dividends.

Double Dip? Many of these companies deserve it. Possible? Yes.

Remember that there are millions of people don't even qualify for the unemployment figures any more in the USA. These people are the being lost in the statistics.

In the past two recessions, the job situation has not gotten back to the level before the recession. It is most likely going to be the same again.

Of course, around the world, people are standing up for themselves and it is affecting business decision to move off shore. Look at the recent strikes and movements in the auto industry in China as an example.

Be careful of statistics as they can be skewed to paint the picture that the person wants too state. The pressure is to paint an upbeat sense when on the street, people are struggling.

Yes there are jobs out there and some are good but you have to have the skills and be willing to travel. Can you afford to make that first move? Many cannot now. They have no savings, credit or assets left to go after these jobs.

The GDP figures are not a good measure of the economy as it doesn't look at the negative effect of borrowing to spend. Borrowing to spend is what has driven the USA and World economy to the height that it crashed from. The country and the people of the world need a better method to measure the well being of the economies.

In January of this year, this was a headline “GDP Is Misleading Measure of Wealth, Says Top Economist” which goes on to say.

“The most commonly used measure of overall economic output is misleading and inaccurate, according to one of the world's leading economists.” and "As long as we rely on GDP and HDI, we will continue to paint a misleading picture of economic performance," he said.

It is also time to end the tax breaks for the rich. Make tax breaks relative to employment figures and wages. CEO's wages more than 50-100 times the average wage, no tax breaks.

Sorry for the rant.


August 2, 2010 8:53 PM

Some good comments here. I like what Murphy, Neil, and Randwyck wrote. Fundamentally, it seems the the unemployment is structural. We have had a housing boom since 2000 and people have skilled themselves for decent paying construction jobs that no longer exist. This is our own fault, the bubble was fueled by low interest rates in an attempt to pull US out of the mild 2000 recession. The low interest rates financed the construction, and the jobs, which produced hard assets to back the loans. It didn't really finance innovation, R&D and such which is much more difficult to underwrite due to the higher risks.

With the housing bubble gone, the fed is just pushing on a string. It's hard to mark loans against intangible assets, R&D etc, and the banks have noone to lend to. We should realize that the governments' power is indeed limited. The Fed can't quickly fix these problems, asset purchases won't help and will just put more slack into the system.
This is why the profit side is encouraging. In time, the profits will rebuild the equity side of balance sheets. It's that side of the sheet that companies can take real risks with. Eventually, seeing they can earn no money else where, that equity will be put back to work on innovate higher risk projects, people will skill them selves for the 21st century economy and unemployment will fall. It took 8 years to grow the housing bubble, it's going to take a few years to unwind it.

build a waterfall

September 28, 2010 6:28 AM

It is a good thing that you posted it. We all aim for the profit and all things should be taken into consideration. I may say, it is a must. Well, good things are coming and more power.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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