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CEOs explain why they're not hiring despite cash, rising profit

The Washington Post published an interesting article tonight discussing some reasons behind lack of hiring in the current economy (http://www.washingtonpost.com/wp-dyn/content/article/2010/08/20/AR2010082005165.html).  Many of the main points made in the article were inline with what we have been saying for a while.  They are summarized below:

  • No hiring is due to lack of certainty about if and when consumption will pickup.
  • Many executives continue to say that the period of inventory replenishment has ended.
  • Companies are not expanding capacity as they don't expect significant growth. In fact, some are investing in technology only to make production much more efficient and lessen the need for human labor.
  • And for the many that throw geopolitical factors at our economic problems - "None of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring."  Of course, many did complain about health-care reform and potential expiration of Bush's tax cuts.
  • Many do not expect any of the stimulus policies to convince them to hire more aggressively. As we have said, those policies only up the values of stocks artificially. This will not improve consumer confidence or create consumption growth (for many reasons that we have discussed on this blog).  We should also note the participation rate of individual investors (or retail investors) in the market continues to decline.

Many may ask what the companies will do with their stronger balance sheets.  We do believe that the latest trend of M&A will continue but due to companies’ inability to grow organically, which is again driven by lack of demand.  This is very different from growth periods when M&A spiked up due to increasing competitiveness in the markets as a result of strong overall economic growth.



Disclosure: No positions.