By Ian Swanson - 07/29/10 10:00 AM EDT
A strong corporate-earnings season is dimming worries of a double-dip
recession, but is unlikely to lead to a swing in employment that will
help Democrats this fall.
Dozens of corporations, including Dupont, FedEx, Apple and IBM, have reported earnings that exceeded expectations for the second quarter, boosting confidence in the U.S. economy.
The 9.5 percent unemployment rate is expected to rise a week from Friday when the Labor Department releases its July report on job figures.
An estimated $2 trillion has been stockpiled by corporate executive officers, who so far are holding onto that cash out of fear the economy will enter a double-dip recession.
Companies are still focused more on reducing debts than hiring new workers or expanding their businesses, said Frederick Cannon, an analyst with Keefe, Bruyette & Woods.
“I think it’s reflective of a low-inflation, show-growth environment where people feel there’s not a lot of confidence incomes will grow,” he said.
It’s hardly unusual for corporations to shy away from spending after a recession, which has exacerbated the last two jobless recoveries.
Unemployment didn’t peak until 19 months after the last major recession officially ended, in November 2001. Unemployment peaked at 6.3 percent in June 2003.
The recession of the early 1990s that led to the defeat of President George H.W. Bush ended in March 1991. Unemployment peaked at 7.8 percent in June 1992. The recovery was well under way by the time President Clinton was elected that fall.
Unemployment has jumped around in the wake of the current recession, partly because of the hiring of temporary workers for the census.
The recession probably ended sometime in the second quarter of last year. That means it could be months before businesses develop enough confidence to let go of their cash to open new ventures that will spark hiring.
“Businesses aren’t seeing demand for their goods and services pick up enough to merit investments or hiring,” Heidi Shierholz, who analyzes employment at the Economic Policy Institute, said in an e-mail.
Said Cannon: “The focus out of a deep downturn is skittishness. Nobody’s ready to hire yet.”
Moody’s Analytics Chief Economist Mark Zandi expects the monthly jobs report for July to show the private sector created 100,000 jobs, similar to last month. But he believes the unemployment rate will rise to 9.6 or 9.7 percent.
“It is not unusual for businesses to be cautious and hoard their cash for a while after recessions,” he said. “That was clearly the case in the wake of the 1990-91 and 2001 recessions.”
Zandi said businesses seem even more cautious in this recovery, probably because of the recession’s severity.
Political prospects — at least in terms of the economy — are slightly more promising for President Obama and the White House.
History suggests unemployment will fall in 2011, and Moody’s predicts the rate will be closer to 9 percent by the end of 2011. It could fall further during the 2012 presidential election year, though it will probably be higher than in the summer of 2008.
GDP growth is projected to increase to 3.6 percent in 2011, which should feed more positive corporate earnings reports.