Feeling Bubbly
A last-minute merger frenzy and cheery CEOs augur well for the economy in 2005
While the brand-name mergers get most of the attention, other companies are choosing to return some of their cash hordes to shareholders, either through new or increased dividends or through stock buybacks. General Electric announced in mid-December that it would repurchase as much as $15 billion worth of its stock over the next three years, while also raising its 2005 earnings outlook. Kimberly-Clark, Kraft Foods, and Deere & Co. also committed to significant stock buybacks. According to Standard and Poor's, U.S. companies bought back $178 billion in stock this year through October, 52 percent more than last year. Christmas also came early for Microsoft investors, who just received $3 per share in a $32 billion special dividend payout.
Wall Street's memory may be short, but the wounds from the 2001 crash are fresh enough that many corporate treasurers maintain a decidedly conservative approach to cash management. "I think the current thinking is that disciplined use of cash is highly valued," says Ron Sargent, CEO of Staples, which recently announced a stock buyback and its first dividend. "The era of the go-go growth in the '90s is being replaced by an era of conservative financial management." -Megan Barnett and Richard J. Newman
Hiring uptick
The flush treasuries and ambitious growth plans also are yielding a benefit beyond the investor class: Those making New Year's resolutions to get new jobs may actually be able to keep them. Corporate managers are becoming slightly more optimistic with their hiring plans for the coming months, according to several polls. In a survey of 1,600 companies, employment services firm Manpower found that 24 percent expect to increase hiring in the first quarter of 2005, up from 20 percent in the same quarter of 2004. Still, 10 percent said they plan to decrease hiring, and 59 percent expect no change. The sectors most likely to post help-wanted ads: construction, finance, public administration, and mining.
Even with brimming corporate coffers, increasing head count is still not a priority for many employers. "It actually fits a very typical psychological pattern," explains Gary Burnison, of the recruitment firm Korn/Ferry International. Employees are usually the last cutback during a downturn--and the last to return in a rebound. Temporaries and consultants, however, often come first, and such hiring is up 14 percent over last year, says the American Staffing Association.
Still, CEO s remain hopeful that the economy will continue to expand and that the expansion will ultimately lead to job growth. In the December CEO Economic Outlook Survey from the Business Roundtable, 40 percent of CEO s said they expect to invest in more personnel in early 2005. And Burnison points to the impending flood of baby boomer retirees as an indicator that the job market is poised for expansion. "The economy can't continue to grow without adding jobs," he says. "Companies, at the end of the day, rely on people to execute strategies." Recent jobs figures from the Labor Department seem to reflect an improving, if erratic, job climate. More than 2 million jobs have been added in the past 12 months, though it was an impressive 303,000 jobs in October followed by a lackluster 112,000 in November. -Megan Barnett
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