Why aren't companies hiring?

The U.S. economy’s paltry addition of 69,000 jobs in May has intensified the political finger-pointing, but the truth is that no one really knows for sure why the economy is growing yet too few jobs are being created, said Sageworks CEO Brian Hamilton.

“The jobs report is disappointing because, at this stage of the recovery, the economy should be generating more jobs,” said Hamilton, who is also co-founder of the financial information company. The sluggish job growth is a paradox, he said, “because privately held companies, which actually produce the vast majority of new jobs, are performing quite well.”

Indeed, Sageworks’ data shows privately held companies’ sales have increased by an average of 8.08 percent in 2012, on the heels of 8.25 percent sales growth in 2011. Net profit margins, meanwhile, have increased to an average of 6.84 percent so far this year, compared with 5.87 percent during 2011.
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries — adjustments commonly made to private-company financials in order to provide a more accurate picture of the companies’ operational performance.

The federal government said Friday that U.S. unemployment edged up to 8.2 percent in May from 8.1 percent in April, sending Wall Street stocks skidding and inflaming worries about a global economic slowdown. Stocks faltered again Monday as the debate over what’s keeping job growth slow continued.

Hamilton has said that business owners remain nervous about where the economy’s been, where it is now, and where it’s going in coming quarters. A recent Sageworks survey of accountants, bankers and others who work closely with private companies found that about 32 percent of these professionals believe their clients aren’t hiring because they are concerned about the economy in general. Another 22 percent of those surveyed said private companies have become more risk averse because of lingering anxiety from the last recession.

In addition, technology and other productivity improvements have helped boost per-employee sales and profits in recent years, which could reduce the urgency for some companies to hire. In the Sageworks survey, 23 percent of respondents said their clients’ efficiency has reduced the need to hire additional people.

Recent Sageworks data has also shown that later customer payments and slower moving inventory have combined to tie up private companies’ cash 16 percent longer than just three years ago. That’s money companies don’t have in the bank to hire new people or buy equipment.

Other data sources have blamed the lingering employment woes on a gap in the skills needed and those available, geographical constraints tied to the still-difficult housing market and the increase in the number of people dropping out of the workforce, a trend that is tied to an aging population.

Sageworks, a financial information company, collects and analyzes data on the performance of privately held companies and provides financial forecasting software.

Written by: Mary Ellen Biery