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Here's one seeming paradox of the current economic slump: Companies, by and large, are doing pretty well. But they're still not hiring workers, which is why unemployment remains sky-high, and the economy as a whole is barely growing.
Corporate profits hit a record $1.67 trillion in the third quarter of 2010 -- up an eye-popping 28 percent from a year ago. Often, that would correspond with an increase in hiring, as companies use those profits to expand. But that's not happening. As we all know, unemployment inched up to 9.8 percent in November -- and by one measure, post-recession unemployment is at its worst since World War Two.
Instead, businesses are playing things safe, and simply holding onto their cash. Non-financial U.S. companies held $1.93 trillion in cash and other liquid assets at the end of September, the Federal Reserve said yesterday. And 7.4 percent of companies' total assets were cash -- the highest share since 1959. Offering more evidence that companies aren't eager to expand, they've announced $150 billion in stock buybacks this year -- a huge spike from 2009.
Still, it's not as if companies aren't spending on anything. We've seen strong spending on equipment and software lately, Brian Bethune, an economist at IHS Global Insight, told The Lookout. That's because, thanks to competition in the tech sector, software is cheap, and incentives currently make it an ever better deal.
But the economy won't pick up -- and unemployment start to come down -- until businesses decide to invest in workers, and not just software. To do that, of course, they'll need more confidence that there's a light at the end of the tunnel -- and right now, that confidence is in short supply.