Falling profits mean more job loss

By Emily Kaiser

WASHINGTON (Reuters) - In the world of corporate profits, much like the broader economy, less bad is good these days. Unfortunately, it's not good enough to stem the rise in unemployment.

Two-thirds of the companies in the U.S. Standard & Poor's 500 index reported first-quarter profits that exceeded analysts' expectations, according to Thomson Reuters data, which is one reason why the S&P 500 stock index has rallied more than 30 percent from an early March trough.

However, the actual earnings results were down nearly 36 percent from a year earlier, and the United States lost a net 2.1 million jobs over those three months.

It is a reflection of what is happening in the broader economy. Readings on manufacturing and consumer spending show the U.S. economy is unraveling more slowly than it was just a couple of months ago, although true recovery has yet to begin.

Credit markets, which have been under severe strain since the bankruptcy of Lehman Brothers in September, are also showing signs of improvement. Barclays Capital economist Ethan Harris described the current market mood as "moving from 'nuclear' to 'Canadian' winter."

There were also fewer job losses in April than in March. But until corporate profits turn around, companies will not be doing much hiring, and unemployment will probably keep climbing well after the recession officially ends.

Indeed, after the 2001 downturn, it was another 19 months before unemployment finally peaked.

Figures due on Friday are expected to show U.S. corporate profits after taxes fell at a 7 percent rate in the first quarter, which would be an ugly reading but not as bad as the fourth quarter's 10.7 percent drop -- the worst since 1994.