Thanks for nothing, Corporate America

But this is hardly cause for celebration. The surge in profits isn't doing much to boost the economy.

Gross domestic product rose at just a 2.5% annualized clip in the third quarter. The good news is that's better than an earlier estimate of 2%. The bad news is that this level of growth is still subpar, especially coming off a series of gigantic quarterly declines in GDP in 2008 and 2009.

What's more, the labor market is far from being healthy. Sure, initial claims are at their lowest level in about two and a half years.

But the unemployment rate has been stuck at 9.6% for the past three months and few expect it to fall below 9% anytime soon. Heck, the Federal Reserve even indicated Tuesday that unemployment is unlikely to return to a more normal rate of around 7% until 2013.

This is, to put it mildly, troubling.

It will be difficult for the economy to improve in a meaningful way until there are fewer people out of work. Unemployed consumers clearly need to watch their budgets. And even people with a steady paycheck are not likely to spend a lot if they are worried about their own job security.

0:00/2:40Slow economic incline ahead

But companies won't feel compelled to add to their payrolls until they are confident that consumers are going to spend a lot more -- which probably won't happen until the job market improves.

So Corporate America faces the proverbial chicken vs. egg conundrum.

They can continue to cut expenses to the bone and work existing employees even harder. Hooray for productivity gains!

Or companies can start hiring more people with the hopes that more gainfully employed Americans eventually will lead to higher demand for their products and services. Good luck with that.

The real problem: income inequality

Companies can point to the fact that demand isn't robust enough to add more staff. According to estimates from Thomson Baseline, revenues for companies in the S&P 500 are expected to increase, on average, by 9% in 2010. But sales growth is forecast to slip to 7% next year.

"Revenue growth is still sluggish so companies think the lack of hiring is a rational response," said Peter Cohan, president of Peter S. Cohan and Associates, a venture capital and management consulting firm in Marlborough, Mass.

"Companies are going to squeeze more out of their existing work force. The pressure is on workers since unemployment is so high. People have to grin and bear it," Cohan said.

Jason Tyler, senior vice president and director of research operations at Ariel Investments in Chicago, agrees.

Tyler points out that as long as the average American worker is nervous about the economy, spending won't rebound strongly enough to make companies consider major headcount expansions.

"I don't think that we are going to see hiring coming back fast. It will take a long time to get back to what everyone will consider a good job market," he said.

"It's not just the fact that about 9.5% of people are out of work but the effect it has on people that are employed. Spending is so dramatically reduced by fears of losing a job and not being able to replace it," he added.

So is there any good news about the job market and economy to be gleamed from record profits? Yes. Cohan said one reason companies are doing well is because of stronger demand from emerging markets like China, India and Brazil.

Cohan said companies will need to hire more people if they want to continue expanding in those hotter growth markets. The catch, of course, is that many of the jobs will be in those local markets.

But if U.S.-based multinationals are going to make a bigger effort to sell their wares abroad, surely they will need some people in the United States. And if a couple of big firms start hiring more workers, other companies could soon do the same.

"If you notice anything about how corporations work, it's that businesses do have a certain herd mentality," said Cohan. "If one company does something, others quickly follow. That's usually what happens."

Tyler isn't so sure. He said that companies are likely to remain enamored with their expanding earnings and will be unwilling to spend a lot more on new employees until they're certain the economy is really on the mend.

"Earnings can keep growing at a good rate longer than people think. Small revenue gains can lead to dramatic profit gains," he said. "The reason is that companies are still so shell-shocked because of the recession. Nobody wants to add a lot of expenses," he said.

"Profit growth is going to be a lot faster than GDP growth for a long time," Tyler added.

In other words, corporate executives can count their blessings this holiday season. And they probably will again next year. Too bad it may be at the expense of the rest of us.

Gobble gobble gobble. Have a Happy Thanksgiving, everyone. The Buzz will be back on Tuesday, November 30.

- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney.com, and Abbott Laboratories, La Monica does not own positions in any individual stocks.  

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Huge drop in unemployment claims

"For the 80% of America that is participating in this recovery, it's time to take out the champagne and have a very nice holiday, because things are improving," said John Silvia, Wells Fargo chief economist.

Economists surveyed by Briefing.com had expected initial claims to rise slightly to 442,000.

The weekly measure has been stuck in a rut since last year, hovering in the mid to upper 400,000s and even ticking slightly above 500,000 in mid-August. Economists usually say the number needs to drop below 400,000 before the stubbornly high unemployment rate -- which currently stands at 9.6% -- can drop significantly.

A number as low as 407,000 is as close to that level that the data has gotten since July 2008, when there were 405,000 initial claims.

"The level is getting close to breaking the 400,000 barrier, and that's a breakthrough in terms of the trend," Silvia said.

Silvia also rules out the idea that the report could be just an upbeat blip in the data. For four of the last five weeks, the number has stayed below 440,000, and many economists are taking that as a sign that the job market is showing consistent improvement.

The four-week moving average, calculated to smooth out volatility, totaled 436,000, down from the previous week's revised average of 443,500.

Silvia also said Wednesday's data is positive enough to cause economists to significantly raise their estimates for the government's closely-watched monthly jobs report, due out next Friday.

The report showed the U.S. economy created 151,000 jobs in October, and economists are hoping even more were created in November.

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The number of people continuing to file unemployment claims for a second week or more fell to 4,182,000 during the week ended Nov. 13, the most recent data available. That's down a whopping 142,000 from a revised 4,324,000 the week before, and the first time in two years that the number has slipped below the 4.2 million mark.

The report comes a day after Federal Reserve officials offered little hope for the job market going forward. The central bank said the unemployment rate will likely remain high between 8.9% to 9.1% in 2011. 

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Job Growth

"It's maybe an indication that we're starting to turn the corner," said Stephen Bronars, senior economist with Welch Consulting. "It's a small step, but at least we're going in the right direction. Things are definitely not going to get worse."

Businesses continued to hire for the tenth month in a row, following nearly two straight years of private sector losses. Companies added 159,000 jobs to their payrolls in October, much stronger than the 92,000 jobs economists had predicted for the sector.

But the government continued to slash jobs, shedding 8,000 workers in the month.

Only a handful of census workers were cut from government payrolls in October -- nearly the last of the temporary census jobs that have dragged down public sector job growth for the last four months.

And upward revisions for August and September showed there were 110,000 additional job gains in those months than previously reported.

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The unemployment rate, which is calculated in a separate survey, remained unchanged at 9.6%, the government said Friday.

President Obama praised the numbers in an address following the announcement, but emphasized that more improvement is needed.

"We've now seen four months of private-sector job growth above 100,000, which is the first time we've seen this kind of increase in over four years," he said. "That's not good enough. The unemployment rate is still unacceptably high and we've got a lot of work to do."

Americans still struggling

While the report was a generally positive sign, the job market is still very fragile. The labor market needs about 150,000 jobs per month just to keep pace with population growth, and at least 300,000 per month to make a dent in unemployment, Bronars said.

Unemployment is likely to remain high for some time. The rate doesn't include 1.2 million discouraged workers who've stopped looking for a job.

"There are still a lot of people who have stopped looking for work because there weren't as many hires, and as they come back in, it's going to keep that unemployment rate high for a while," Bronars said.

The number of Americans who are involuntarily working part-time, fell to 9.2 million in October but still remains just shy of record highs. This category includes workers who are stuck in part-time jobs because either their hours have been cut or they can't find full-time work.

The so-called underemployment rate, which counts both discouraged workers and involuntarily part-time workers, slipped to 17% from 17.1% in September. That means more than one in six adults are still without the job they want or need. 

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Home Prices

It was, said David Blitzer, spokesman, "a disappointing report ... indicating that the housing market continues to bounce along the recent lows."

The year-over-year rise fell short of expert expectations as put together by Briefing.com, who predicted a 2% year-over-year rise.

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One city that bucked the trend was Las Vegas, where prices inched up 0.1% month-over-month. However, it continued to be the worst performer compared to last year, with prices down 4.5%. Prices in Sin City are down 57% from their peak, which was reached in August, 2006.

Detroit scored the best monthly gain, up 0.5%; San Francisco was up 7.8% year-over-year, the most of any city.

Dallas had the worst month of any of the 20 metro areas: Prices fell 1.1% there. 

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GOP ready to fight over global warming

Shimkus is now one of four contenders to head the House Committee on Energy and Commerce when the Republicans take the reins in January.

Also vying for the leadership post: Rep. Joe Barton of Texas, who apologized to BP for what he called a White House "shakedown" when it agreed to establishing the $20 billion Gulf oil spill trust fund; Rep. Cliff Stearns of Florida, who wants to open up Alaska's wildlife refuge to drilling; and Michigan's Fred Upton.

Upton is considered the front-runner and probably the most moderate of the bunch. He has vowed to eliminate an offshoot of the committee, the House Select Committee on Energy Independence and Global Warming.

"The American people do not need Congress to spend millions of dollars to write reports and fly around the world," Upton wrote in a recent editorial. "We must terminate this wasteful committee."

The new Congress is not expected to do much on the energy front. A broad plan to regulate greenhouse gas emissions and use the revenue to fund alternative energy -- known as cap-and-trade -- is dead.

A spokesman for presumed Speaker of the House John Boehner said Republicans support all forms of energy development, including renewables and nuclear power. But he said any money for them must come from expanded domestic oil and gas drilling -- a prospect that also looks dim given the concerns raised by the BP spill.

Target: EPA

But there is one thing the newly empowered Republicans are sure to go after: the Environmental Protection Agency.

When Obama was pushing his cap-and-trade plan last year, the EPA was quietly working on the sidelines to draft up rules to limit greenhouse gas emissions. Heavily targeted would be power plants, refineries, and heavy industries such as steel and concrete.

The EPA was under court order to do so, having lost a Supreme Court challenge by the state of Massachusetts under the Bush administration. The high court said that if EPA classified greenhouse gases as a public health threat, which it did, then it must regulate them.

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Obama and his advisers claimed they didn't want EPA to regulate greenhouse gases, preferring instead to get the job done with a Congress-approved cap-and-trade plan. But many analysts saw EPA's moves as an implicit threat to lawmakers: pass cap-and-trade or else deal with EPA.

But cap-and-trade failed. Now the Republicans -- along with many coal-state Democrats -- are scrambling to stop the "or else" part of that equation.

"Unquestionably, there will be more oversight of the EPA," said Roger Patrick, an environmental lawyer at Mayer Brown. "The president might even sign a bill to limit EPA's authority."

Republican lawmakers have made their intent clear.

"The EPA is working on a regulatory train wreck," wrote Upton. "If the EPA continues unabated, jobs will be shipped to China and India as energy costs skyrocket."

Obama has been a bit more ambiguous.

In a speech following the big Democratic losses this past election day, the president said, "I think EPA wants help from the legislature on this. I don't think that, you know, the desire is to somehow be protective of their powers here."

But others question just how much interference from Congress Obama wants.

"The administration will not want to open up a major rift with liberals and environmentalists over this, particularly as it seeks to energize its base looking ahead to 2012," said Divya Reddy, an energy policy analyst at the Eurasia Group, a political risk consultancy.

Just last week, EPA issued guidelines for greenhouse gas emissions that will take effect this January. The guidelines were not particularly strict, which analysts took as a sign that the agency was willing to work with industry, but also as a sign that it plans on pressing ahead with its plan to regulate these gases

It seems that dealing with EPA is becoming a reality.  

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Flying for the holidays won't be cheap

The days of cheap holiday plane tickets are over, he said. Airlines have been cutting capacity in the last couple years in response to the lower demand. They've been cutting costs by offering fewer flights, and therefore fewer seats, meaning fewer choices for travelers as demand picks back up.

Opinions differ as to the severity of the fare increases. Genevieve Shaw Brown, senior editor for Travelocity, said that domestic air fares are higher by 5% for the December-January season, averaging $421 round trip. She said that international flights are up by 11%, for a round-trip average of $894.

Seaney's estimate is much higher. He said that fares are up by 17% for the December-January holiday season compared to last year. He based that calculation on 1,200 routes through the 50 busiest airports in the U.S.

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Seaney said the increase is so dramatic because air fares are recovering from a 2009 bottom caused by slumping demand from the ongoing recession.

Air fares and travel volume are also higher for the Thanksgiving holiday, according to forecasts. The Air Transport Association forecasts an increase of 3.5% in travel volume for the Thanksgiving period, compared to last year. AAA said that Thanksgiving air fares are up 4% from 2009.

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As a result of the lower capacity and packed flights, Brown of Travelocity said that the old trick of holding out for last-minute deals no longer applies. Airlines are unlikely to have empty seats in need of filling, she said.

"Over peak holiday travel, it doesn't make much sense to roll the dice and wait to book your tickets," she said. "It's just very unlikely that prices will drop over a high demand period.It's really just in your best interest to book as far ahead as possible for the holidays."  

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Consumer Confidence

High unemployment and unfavorable business conditions have dragged the index down to a painfully low level, far below 90 -- the level which indicates a stable economy. Overall, the index has been volatile, not trending in any one direction for more than three months in a row this year.

"Consumer confidence, while slightly improved from September levels, is still hovering at historically low levels," Lynn Franco, director of The Conference Board Consumer Research Center said in a release.

Economists surveyed by Briefing.com had expected the index to barely tick up to 49, so the news was a bit better than expected.

In October, the number of consumers calling business conditions "bad" outweighed those saying conditions are "good" by nearly five to one, slightly better than the month before, when that ratio was six to one.

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Those saying jobs are "hard to get" rose, still far outnumbering those who say jobs are "plentiful."

Consumers continued to have a predominantly gloomy attitude about both future employment prospects and business conditions, but were slightly more optimistic on those fronts than last month.

The consumer confidence index is based on a survey of 5,000 U.S. households and is closely monitored because consumer spending drives two-thirds of the nation's economic activity.

A reading of 100 or greater would indicate strong growth, and the index has not reached that level since mid 2007.  

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