Now showing this earnings season: the Incredible Shrinking Corporation.
Since the start of the recession two years ago, corporate and consumer balance sheets have been engaged in a forced bout of cutbacks that figure prominently in fourth-quarter earnings reports coming out now.
The signs are everywhere. General Electric Co.’s chief financial officer on Friday referred to the “focused shrinkage” of its financial unit. A day earlier, Target Corp. said it plans to test stores that will have 50% fewer items.
Of course, cutbacks of staff, assets and inventories have helped the bottom line. Earnings for companies in the Standard & Poor’s 500-stock index are running above last year’s disastrous fourth quarter, which marked the first time the S&P 500 as a group lost money. With about a quarter of the 500 companies having reported fourth-quarter results, profits are up 154% over a year ago.
But the shrinking has had broad impact. If you’re already unemployed, it’s harder to find a new job. Nearly 40% of the unemployed have been jobless for 27 weeks or more. And if you’re lucky to still have a job, your wages aren’t growing enough to keep pace with even meager inflation.
Bureau of Labor Statistics data show seasonally adjusted average hourly earnings up 2.2% last month versus a 2.3% rise in consumer prices. Companies enjoying the fruits of profit growth with a slimmer silhouette evidently aren’t in a hurry to start hiring again.