If you’re not paying your vendors on time, chances are you are not about to go on a hiring spree.
That’s the conclusion to be drawn from a new survey, which shows that while US private companies are doing well, they are holding onto their cash with both hands.
Sageworks — a business consultant that took the pulse of firms — says employers’ reluctance to hire is happening at the same time that private companies are recording good sales and profit numbers.
For instance, net profit margins for private companies in the 12 months ended in April were up some 6.5 percent, compared with the 4 percent that was chalked up three years ago.
But although private companies are generally doing well, they are not expanding and hiring new workers, Sageworks says.
Even though the economy is in a recovery, private companies are holding on to their money, in large part because they can’t be certain about what conditions are coming.
These firms are also making their vendors wait almost a week longer to get paid than they did during the recession.
It’s important because private companies represent about 50 percent of the GDP and typically some 65 percent of the jobs.
Sageworks found two main reasons that companies are still tightening their belts: They are hedging their bets, fearful that the nation could go back into a recession. And during the last recession, they found ways to operate more efficiently and will keep many of these methods as a way of keeping costs low.
That’s led many Americans to ask why, if the unemployment rate is moving lower than two years ago and the government is assuring us that the nation is in a period of economic recovery, they can’t find jobs.
“Until businesses feel as if the expansion is very solid, they may be reluctant to hire significantly,” says Brian Hamilton, CEO of Sageworks.
The Federal Reserve Board has downgraded its outlook for gross domestic product growth this year, projecting a range of 1.9 percent to 2.4 percent.
“Right now, there’s this general anxiety as to what’s going to happen in the future,” Hamilton explained.
Joseph Salerno, a Pace University economics professor, agrees.
He says there is “a pervasive regime uncertainty” affecting the economy. Employers don’t know what new rules, laws or taxes will come next year, after the presidential and congressional elections.
Brad Schaefer, an analyst with Sageworks, says the economy needs at least two consecutive quarters of private companies becoming more enthusiastic about the economy.