Companies pile up cash but remain hesitant to add jobs
Thursday, 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 year.
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 said 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. The White House said that it did not ask for a specific slot.
"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 had been scheduled before they knew of 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 those 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.