Issue of the week: Do soaring profits point to a recovery?

last updated 8 January 2015

The economy sure looks a lot better from company headquarters than it does from street-level storefronts, said Christine Hauser in The New York Times. While Main Street anxiously worries if the economy will slide back into recession, “for corporate America, a recovery of sorts is already at hand.” Corporate profits have rebounded 65 percent since 2008, and early returns from the latest round of earnings announcements suggest they’re headed higher still. Aluminum producer Alcoa, which by tradition leads off the earnings-announcement parade, this week reported better-than-expected income of $137 million, or 13 cents a share, during the quarter ended June 30, a big improvement over its $312 million loss in the year-earlier quarter. Better yet, Alcoa is forecasting increasing demand from its biggest customers, a hint that business is picking up in manufacturing and housing. But the question remains: When will higher earnings “yield jobs for recession-weary Americans”?

Sooner than you might think, said Nelson Schwartz, also in the Times. Despite the financial sector’s unhappiness with the Obama administration’s economic policies, “hiring is beginning to pick up in the place that led the economy into recession—Wall Street.” And if nothing else, that’s a sign that Wall Street, at least, thinks the economy may have “bottomed out.” Financial firms certainly have reason to be upbeat. Those with seats on the New York Stock Exchange earned $61.4 billion in 2009, the highest total ever. They’re spending some of that money on new hires, with JPMorgan adding 2,000 jobs since the first of the year and Goldman Sachs hiring 600 new employees in the first quarter.

But when will nonfinancial firms follow Wall Street’s lead? asked Paul LaMonica in CNNmoney.com. CEOs at companies like Alcoa say they’re “jazzed about the future,” but “it’s as if these executives don’t fully believe what they’re saying.” Only 22 percent of corporate financial officers surveyed recently say their staffing levels are set to increase, while 30 percent anticipate further job cuts at their firms. They seem haunted by the financial crisis, and worried that debt problems in Europe and continued weakness in U.S. consumer spending “could keep a lid on any rebound.” If their caution continues, we’re in for “a barbecue recovery—long and slow.” Businesses are understandably afraid of getting ahead of themselves, said Gail MarksJarvis in the Chicago Tribune. But as business picks up, companies are more inclined to invest in new jobs and equipment. Of course, if those investments don’t quickly generate returns, profits suffer. It’s risky—but it’s also the best hope for the economy and millions of jobless Americans.