Citi Executive: 'Corporate Sector Cannot Continue To Simply Cut Costs'

Citi Executive: 'Corporate Sector Cannot Continue To Simply Cut Costs'

High corporate profits have been one of the few bright spots for the global recovery. One high-level financial executive isn't so sure that success can be sustained.

Richard Cookson, global chief investment officer at Citi, told CNBC's Squawk Box on Tuesday that corporation's reliance on cost-cutting to increase growth may soon run out of steam. Many corporations have posted strong profits during the recovery, largely due to cost-cutting and increased productivity from the consequently diminished workforce. That model is simply not sustainable, says Cookson.

"In aggregate, the corporate sector cannot continue to just simply slash costs rather than have top-line growth," he told CNBC. "It just doesn't work."

Corporate profits hit an all-time high of $1.68 trillion in the fourth quarter of 2010, subsequently maintaining solid growth. Three out of four companies on the S&P 500 saw larger profits than expected in the second quarter of this year, according to Bloomberg. But Cookson contends diminishing margins make that a temporary fix at most.

With such positive numbers, Cookson admits "there's not a single market on God's earth where the consensus of analysts have predicted a fall in profits," but others like himself are worried that corporations have done little to stimulate real growth. According to Slate, S&P 500 companies are sitting on more than $1 trillion. Rather than using it to create jobs, however, many are instead hoarding it, waiting for a better return.

Signs of productivity tapering off have already manifested in the economy, according to the Labor Department. Declining productivity could mean bad news for potential hires. It could also be just the opposite: Overworked employees, unable to cope with increasing workloads and decreasing benefits, could be maxing out.

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Admin wrote:It's amazing how the business community is only now learning that demand is predicated on a robust segment of the population being capable of actually purchasing the goods and services available on the market. No jobs = no money to purchase products. I do hope that the market fundamentalists enjoy waiting for the private sector to mend this problem.