Frugality Returns To Corporate America

Several retail analysts pointed out that Walmart’s (NYSE: WMT) earnings and those of Home Depot (NYSE: HD) were helped by rigid cost controls. This is not the first time during the earnings season, which has drawn to a close, that big public firms kept expenses lower than in past years. It is a sign that the huge retailers do not think much of their prospects for the balance of the year. Walmart’s expected earnings improvement during the last part of 2010 is almost all based on expansion of its international unit.

The second quarter of the year was supposed to be the first in many quarters when company earnings improved through growth on the top line. Instead, it was cost discipline that helped make many companies more money. Microsoft (NASDAQ: MSFT), and some other megacaps, did have sales improvements but they also continued to either lay-off workers or keep their employment rolls static.

The evidence that joblessness will not improve in the second half of the year is based on two assumptions. The first is that small companies have no access to capital so they cannot hire. The other is that large companies will not hire because they do not need to. Rather, they raise money at very low interest rates either to replace higher coupon debt or create larger rainy day funds in case of a second recession.

The federal government, as odd as it may seem, has not approached big companies with a single national program to give them significant incentives to add workers. That might involve tax credits as high as one year’s salary for net new employees added. Taxpayer money spent that way is probably better than the tens of billions spent on unemployment. The president of the Minneapolis Federal Reserve recently suggested that joblessness benefits from the government should not end at 99 weeks but should go on indefinitely. That may be a compassionate approach and could help consumer spending, but it is going to be a costly one if adopted.

It is hard to get millions of small companies, many of them desperate for money, to add people. With firms that employ thousands and tens of thousands of people, and have strong balance sheets, it is a different matter. Congress and the Administration do not seem to have come to that conclusion.

Douglas A. McIntyre