Wednesday, July 14, 2010

Companies pile up cash but reamin hesitant to add jobs...

Really?? Wow - shocka......The fact that companies KNOW they can use the unemployment numbers as a tool to make those who have jobs to work harder, ask for less and take whatever is given to them....this is not a good trend and is NOT in their best interest long-term as the pendulum will swing in the other direction eventually.

Companies need to " Do the right thing " - Cash reserves are good but employees will remember how they were treated when things change....].

And the present Administration is NOT helping things by making it harder for them to provide benefits with O-Care and other regulations. It is a perfect storm and the ones caught in the middle of it is the US workers.....delightful.

Companies pile up cash but remain hesitant to add jobs
By Jia Lynn YangWashington Post Staff WriterThursday, July 15, 2010;

Corporate America is hoarding a massive pile of cash. It just doesn't want to spend it hiring anyone.

Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession. And as several major firms report impressive earnings this week, the money continues to flow into firms' coffers.

Yet all the good news from big business hasn't translated into much promise for jobless Americans, leading many to wonder: If corporations are sitting on so much money, why aren't they hiring more workers?

The answer to that question has become a political flash point between the White House and big business groups such as the U.S. Chamber of Commerce, which held a jobs summit Wednesday and accused the Obama administration of dumping onerous regulations on businesses. That has created an environment of "uncertainty," which is causing firms to hold back on hiring as the unemployment rate has hovered near 10 percent, the Chamber said.

The White House countered that companies are wary of hiring not because of new regulations but because they're still waiting for consumer demand to return. The administration also claimed credit for 3.5 million jobs created by the stimulus bill from last fall.

The acrimony over jobs comes at a particularly tense moment in the relationship between business groups and the White House. With the midterm elections looming and polls showing Americans expressing a lack of confidence in President Obama's handling of the economy, White House officials are eager to demonstrate that their policies are helping, not hurting, the prospects for job growth and are making an extra effort to reach out to industry leaders.'

For the Chamber's jobs event, the White House says it asked for a speaking slot for senior adviser Valerie Jarrett, who acts as a liaison to the business community, but the Chamber turned down the request. Chamber officials said Jarrett's office called Tuesday afternoon, the day before the conference, and demanded a speaking slot immediately after remarks from Chamber chief executive Tom Donohue.

"There are going to be areas where we differ, but we do have different roles," Jarrett said in an interview. "Our job is to both protect the American people and foster a climate where companies invest and create jobs. Their role is to produce profits for their shareholders."

White House officials also choreographed a competing set of images for Obama on Wednesday, having him meet separately with famed investor Warren Buffett and, later, with Bill Clinton as well as the chief executives of Bank of America and Honeywell. Obama aides said the business meetings were a coincidence and not intended to serve as a counter to the Chamber event. They said the meeting with Buffett had been in the works for a long time. (Buffett is a director with The Washington Post Co.)

The question of how to encourage companies to hire has challenged policymakers.
A survey last month of more than 1,000 chief financial officers by Duke University and CFO magazine showed that nearly 60 percent of these executives don't expect to bring their employment back to pre-recession levels until 2012, or later -- even though they're projecting a 12 percent rise in earnings and a 9 percent boost in capital spending over the next year.

When asked why companies are holding back so much, many economists cite broader uncertainty that goes well beyond anything happening in Washington. Firms aren't sure whether the economy can sustain a strong recovery. And as long as consumer spending remains low, there's not much incentive for companies to ramp up.

The trend of companies holding more cash is not new. Between 1980 and 2006, the average cash-to-assets ratio for U.S. industrial firms more than doubled, according to research by finance professors.

One explanation, said finance professor René Stulz at Ohio State University, is that as competition has become more global, it's become harder for individual companies to survive, and so they hold on to more cash to be safe. He added that companies have also increased their cash holdings in the wake of the financial crisis, in particular since the bankruptcy of Lehman Brothers in September 2008, as the banking system became more fragile and credit became scarce.

Tech companies in particular tend to build large cash reserves. Intel, which reported on Tuesday its biggest quarterly profit in a decade, brought aboard 400 new employees worldwide in the last quarter, though it would not identify in which countries the hirings took place. Intel spokeswoman Lisa Malloy added that the firm expects to spend slightly more money, from $4.5 billion last year to $5.2 billion this year, investing in capital projects around the world.

And yet the firm has $1.7 billion more in its cash pile compared with a year ago. Intel said it is enjoying strong demand for its chips, so low demand doesn't help explain the firm's mountain of cash.

Some analysts said it may be hard to create policy that compels companies to use some of their cash to hire workers. "CEOs don't like taking risks. They kind of move in packs," said Zachary Karabell, president of River Twice Research.

"There's not a whole lot that you could do to entice companies to hire," he added. "You could cut taxes on them, but they're not going to hire just because they have the extra cash, because they already have the extra cash."

Staff writer Michael D. Shear contributed to this report.


angelosam123 said...

I can understand the current circumstances,why companies are afraid of to hire more.Because they are still in the Fix due to fall in the market of last year.
Event Hire

jwenting said...

The real reason companies aren't hiring is twofold:
1) you never know what extra costs the government will leverage on you next (Obamacare, forced unionisation, etc. etc.)
2) most people with half a brain fully expect things to get worse again before they get better, that the current seeming upturn is just a temporary retrieve from an even deeper depression to come. Hiring people in such a situation would be counterproductive quickly as next year you have to lay them off again.

Middleboro Jones said...

Agree & Understood on your remarks - The issue is also that the companies who are doing better need to be a little less adverse to risk as that is how successful companies got more successful - by taking calculated risks when an opportuniry arises...

" Ships are safe in the harbor but that is not what ships were built for" applies here....

We need the prviate sector to create jobs as Government cannot do it alone nor would we want them to.