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US corporate profits back to pre-crisis levels but jobs market still lagging

According to the ILO, recent US payroll figures show sluggish employment levels. Corporate profits in the United States have gone back to pre-crisis levels but business investment remains weak amid economic uncertainty.

News | 04 May 2012

GENEVA (ILO News) - Corporate profits in the United States have gone back to pre-crisis levels but business investment remains weak amid economic uncertainty, the ILO said as US payroll figures released Friday, showed employment growth remained sluggish.

The economy added only 115,000 jobs in April and the unemployment rate stood at 8.1 percent, slightly down from 8.2 percent in March, according to the US Bureau of Labour Statistics.

In March, employment had risen by only 120,000, following a robust performance – 200,000 jobs a month - from December 2011 to February 2012.

The US economy still needs to create close to 4 million jobs to return to pre-crisis employment levels – not taking into account that an additional 1.5 million people a year will be looking for work over the next five years – the ILO said.

“There is a need to boost investment by reducing economic uncertainty facing businesses, chief among which is the financing condition for small and medium size enterprises,” the UN agency said in its World of Work 2012 report.

Business investment as a percentage of GDP in the United States remains below a pre-crisis average of around 20 percent, even though corporate profits have gone back to pre-crisis levels following a streamlining of production.

US companies are reluctant to take on additional investment risk in the face of economic uncertainty and constrained access to external finance, preferring instead to increase liquid asset holdings, which have reached unprecedented global levels.

Cash holdings and investment as a percentage of total assets by firm size in the U.S., 2001–2010
Source: IILS estimates based on FactSet Research Systems.
The share of cash holdings in total assets increased from around 4.2 percent in 2006 to 5.3 percent in 2010 for large companies and from 5.2 percent to around 6.2 percent for medium-size firms, according to the report’s “Snapshot of the United States.”

“The path to recovery lies in moving to a comprehensive jobs plan”, the ILO said. It hailed the American Jobs Act - which the government announced in September 2011 - as “a welcome step forward”, but said concerted action by all stakeholders was needed as key elements of the bill remain stalled in Congress.

The report also argued that well-designed public investment can help boost private investment and support the creation of more and better jobs.
It further stressed that enhancing social protection is vital in supporting jobseekers and keeping people from falling into poverty. The US Census Bureau indicated at the end of last year that close to 50 million Americans were poor and the number of those just above the poverty level was higher than previously believed.

“A weak economy and jobless recovery call for a further strengthening of antipoverty programmes,” the ILO said.

Tags: employment

Regions and countries covered: United States

Unit responsible: Department of Communication (DCOMM)

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