Poor, poor corporations. If only we could figure out a way to funnel even more money in their direction — say, some more tax cuts for high income businessmen?
Corporate America finished the second quarter with “near-historic” profits, largely by cutting costs, laying off employees and streamlining operations, the Wall Street Journal reports.
Profits for companies in the S&P 500 soared 38 percent from the same period last year, hitting $189 billion, the WSJ says, the sixth-highest quarterly total ever. S&P analysts expect the trend to have continued in the third quarter.
Since 2008, corporate profits increased 10 percent — but revenue was down 6 percent, the WSJ says. To achieve the impressive quarterly results, companies have had, as the WSJ puts it, to “streamline” their operations. This means firing workers, outsourcing labor and shuttering unprofitable (or less profitable) divisions.
Mostly “less” profitable, but why quibble?
The robust state of corporate profits presents a paradox: companies won’t spend their money until the economy improves, but the economy won’t improve until they spend their money. An increase in hiring, for example, would help drive a recovery. The New York Times reports this “chicken-and-egg” phenomenon, noting that near-zero interest rates have encouraged companies to borrow money and simply hoard it because, as the NYT puts it, “they can.” Combined, companies have $1.6 trillion in cash, the paper notes. In the first quarter of this year, their cash reserves represented the highest percentage of assets since 1964.
“They are still holding on to more cash in the same way that Noah built the ark,” Gluskin Sheff chief economist David Rosenberg told the NYT.