The golden age continues!
"Despite plodding economy, some profit; Cost-cutting, flat pay lift corporate world’s fortunes" by Christopher S. Rugaber and Ken Sweet | Associated Press, November 06, 2013
WASHINGTON — Look at the US economy and you’ll notice an unusual disconnect.
It’s being slowed by a tight job market, scant pay raises, and weak business investment. Yet corporate profits and stock prices are reaching record highs. What gives?
I'm sure the corporate pre$$ will explain it to you.
For starters, weak job growth has held down pay. And since the recession struck six years ago, businesses have been relentless in cutting costs. They have also stockpiled cash rather than invest in new products or business lines. And they have been earning larger chunks of their profits overseas.
All of which is a recipe for solid profits but tepid economic growth....
Even so, corporate profits equaled 12.5 percent of the economy in the April-June quarter, just below a 60-year high reached two years ago. Profits of Standard & Poor’s 500 index companies have nearly doubled since June 2009.
Burger King’s sales fell last quarter as competition intensified. Yet its earnings surged because it cut expenses and enjoyed growth overseas.
‘‘Corporations have more market power than workers have and have kept wage growth to subdued levels,’’ says Dean Maki, an economist at Barclays. ‘‘That’s left more for corporate profits.’’
Related(?): Fast Food Workers Co$ting Taxpayers
They are unfit for anything else.
Those solid earnings have helped boost stock prices. So has the Federal Reserve’s drive to keep long-term interest rates near record lows: Lower bond yields have led investors to shift money out of bonds and into stocks, boosting stock prices. The Dow Jones average is up nearly 20 percent this year.
The $85 billion bucks a month the Fed pours into it to buy back Wall Street crap and boost its bottom lines is what they meant.
Here are factors economists cite for the gap between healthy profits and subpar growth:
Flat pay
Corporate revenue rose as the economy recovered.
But workers haven’t benefited much....
No kidding?
Stock market gains have boosted total household wealth. But they haven’t enriched most Americans. The wealthiest 10 percent of households own about 80 percent of stocks.
Cost-cutting
This week, Kellogg said it would cut 7 percent of its workforce, or 2,200 jobs, by 2017 — part of a ‘‘global efficiency and effectiveness program.’’ Though Kellogg’s sales were flat in the July-September quarter, it squeezed out 2.5 percent more net income. A key factor: It cut administrative and borrowing costs. Its shares have risen 15 percent in the past year.
Yeah, I didn't want to mention above that the great cost cutting means the elimination of jobs. But unemployment is allegedly going down, blah, blah, blah.
FedEx is cutting jobs, too. Its quarterly revenue rose just 2 percent, but earnings grew 7 percent. The company has cut maintenance costs by replacing older aircraft. But the new planes don’t expand FedEx’s fleet. So the economy doesn’t stand to benefit as much.
Cash hoarding
Higher profits help the economy if corporations plow them back into plants, equipment, and other projects. That hasn’t happened....
Instead, companies have stockpiled a record $1.8 trillion in cash, according to the Federal Reserve, up nearly 10 percent since the recession ended. And thanks to the Fed’s drive to keep rates low, companies have been able to borrow cheaply and replace higher-cost debt. All that has bolstered corporate finances and helped lift stock prices.
That's what the Fed program was intended to do from the start.
Improved finances are ‘‘great for the company and its stock price, but from the point of view of the broader economy, you’d prefer they use the money to hire more workers and invest in more projects,’’ says Ethan Harris, an economist at Bank of America Merrill Lynch.
But they stuffed in their pockets instead!
Economists say chronic budget fights in Washington and Europe’s financial crisis have left executives uncertain about the economy and reluctant to commit to big projects. So have the uncertain consequences of the Obama health care law, said Mark Vitner, an economist at Wells Fargo Securities.
Hey, that thing is supposed to be good for all us so quite harping on Obamacare!
Globalization
Big US companies earn a larger share of profits overseas than in previous decades. That means their profits and stock prices can grow even when US growth is weak....
Aswath Damodaran, a professor of finance at New York University, says the trend is a global one. Many Indian companies have fared well even as India’s economy has slowed....
Then it is official: globali$ation has completely and utterly failed.
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