What Companies (And You) Can Do to Cut Costs

By Stephen Manning, AP Business Writer

For anyone looking for signs that the recession may finally be giving up its firm grip on the economy, the steady stream of quarterly earnings reports coming out of the nation's companies could offer some signs of hope.

To be sure, big companies like General Electric, Caterpillar, Coca-Cola, Yahoo and drug maker Merck are showing the pain, with sales and profits dropping as the recession eats away at demand for their goods. But many are still managing to post earnings that don't look so bad considering the economic stress they are under.

So what's going on? How can companies still be treading water when the whirlpool of the recession constantly tugs them down?

A close look at the quarterly earnings reports rolling out this month reveals a common theme — cost-cutting.

Like a household budget, corporations try to maximize the money they bring in while minimizing their expenses. With sales sagging, companies are turning to the cost side of their budgets to find savings and keep profits up.

It's paying off for many — less than a fifth of all companies are losing money despite the worst downturn since the Great Depression, according to Cary Leahey, an economist with Decision Economics.

But what are the long-term effects for those companies and the broader economy?

Here are some questions and answers about what companies are doing to keep those costs down.

Q: Big layoffs have been all over the news this year. Where do those factor in?

A: Job cuts are a huge part of the way companies save money. Often when companies mention "cost-cutting," that's actually a nicer way to say layoffs.

Employee expenses are one of the biggest costs that companies face. The combination of salaries, benefits like health care and pension plans, and the costs of paying for offices or factories where those employees work, adds up to a big part of corporate expenditures. Overall, about 60% to 70% of corporate expenses are connected to labor, estimates Brian Bethune, the chief U.S. financial economist at IHS Global Insight.

The painful truth is that the quickest way to reduce costs when a recession takes hold is to slash jobs, reduce benefits or cut wages.

In this recession, many companies acted swiftly as the recession grew worse. Huge layoffs came from companies like Boeing, Citigroup and AT&T during late 2008 and earlier this year. It's no surprise that unemployment has now pushed up to nearly 10%.