Fourth Quarter Company Revenue Gains Are a Mirage

Part of the market run up between Labor Day and mid-January was based on the belief that corporate revenue and earnings would increase in the fourth quarter of 2009. At first blush, they have, but only at first blush. A study by Reuters shows that corporate sales among the S&P 500 companies are up only 2% based on numbers release so far when the financial sector is taken out of the figures. With financial firms added in, the improvement is 7%.The data point to another reasons that job formation has been slow. Howard Silverblatt, analyst at Standard & Poor's told the news service that "While sales growth in the financial sector is important because the industry lends money to corporations to build their businesses, sustained revenue growth is needed in nonfinancial sectors for them to increase hiring."

Earnings are another matter altogether. They are still forecast to rise over 200% among companies in the S&P 500. These earnings are largely based on cost savings. That is ironic when the nation's unemployment rate is taken into account. The portion of the corporate world that has the most access to capital -- big companies -- were still benefiting from layoffs late last year.

Fourth quarter productivity grew 6.2% according to the Labor Department after a 7.2% increase in the third quarter. Companies are wringing more work out of their employees, employees who, in turn, are worried about their future jobs prospects. Economic theory says that an increase in productivity is a sign that GDP is growing and that the companies will have to begin to hire people to handle increased sales. The Reuters data show that sales may not be increasing as much as anticipated. And, that means a surge in employment may not be just around the next corner.
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