Firms Are Doing Well, So Why Aren't They Hiring?

The stock market overall is up about 9 percent so far this year — in large part because corporate profits are doing well. But the unemployment rate is a bit higher than at the beginning of the year. Steve Inskeep speaks with David Wessel, economics editor of The Wall Street Journal, about the disconnect between soaring corporate profits, and stagnant hiring and wage growth.

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STEVE INSKEEP, host:

Corporations across the board are enjoying huge profits and the stock market is up, about nine percent lately.

In contrast, employment rates are higher than at the beginning of the year.

To talk more about what's seems like a disconnect to many people, we called David Wessel. He's economics editor of The Wall Street Journal and a regular guest here on MORNING EDITION.

David, welcome back.

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning, Steve.

INSKEEP: Okay, when we say profits are up, how much? How well are companies doing?

Mr. WESSEL: A lot. We're beginning to get the second quarter profits. You know, some companies aren't doing well. Some winners like Goldman Sachs had a bad quarter. But the season is off to an amazingly strong start.

Drug company Abbott Labs, up 50 percent they said yesterday. United Technologies, which make elevators and aircraft engines, up 19 percent. Harley Davidson said motorcycles sales are up; their earnings more than doubled.

There's an economic commentator Eddie Yardeni who does a weekly tally. And as of last night, he says that of the 100 companies in the S&P 500 who've reported so far, their profits are up nearly 12 percent on average over last year.

INSKEEP: I'm trying to figure that out. I mean if the construction industry is lousy, youve got an elevator company making profits, youve people that aren't spending a lot of money and yet Harley Davidson has more profits on motorcycles. What's going on there?

Mr. WESSEL: Oh, people are buying motorcycles. The sales on motorcycles rose in the United States for the first time in more than four years.

INSKEEP: Hmm.

Mr. WESSEL: But the reason the bottom lines are getting fatter is one, these big companies are getting a lot more of their business from overseas now. Many big companies - the typical big company sells more than half its stuff somewhere else, and particularly in China and other emerging markets business is really, really good.

But another reason is that companies are pursuing relentless cost cutting, getting more out of each hour of work so even little increases in sales mean really big profits.

INSKEEP: Increase in productivity, that's what youre talking about here.

Mr. WESSEL: Absolutely.

INSKEEP: Okay. Well, how much more can companies really get out of their workforces?

Mr. WESSEL: Well, that's a good question. You'd think that eventually they'd have to add workers or make the workers they have work longer hours. But people have been saying that's going to happen any day now for about two years. In all, we lost more than eight million jobs in the recession. Weve only got two million back so far. And so far this year weve added 120,000 a month, so you can see how long it would take to get back to...

INSKEEP: Years.

Mr. WESSEL: ...full employment. And we see now, we have a story on the front of The Wall Street Journal today, that there's a new round of layoffs. It's not only that companies are not hiring, some of them are actually cutting their workforces again.

I think there are a couple of reasons. One is they're simple not confident that there's demand for their product. There's a lot of uncertainty, not only about the economy but about government policy. And then many of them are still finding ways to increase productivity, pushing people to work harder, some using new technology, some with outsourcing and we dont seem to be at the end of that string yet.

INSKEEP: David, weve just got about 10 seconds here. Are companies at least being more generous with the employees theyve got?

Mr. WESSEL: No. Wages are not going up. The typical full-time man made $828 a week in the second quarter. Adjusted for inflation that less than in 2002.

INSKEEP: Wow. Okay. David, thanks very much.

Mr. WESSEL: Youre welcome.

INSKEEP: That's David Wessel, economics editor of The Wall Street Journal.

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