Wall Street bosses are noddin’ their heads like “Yeah” because the US corporate sector reported almost 1.8 trillion USD in earnings this quarter. That translates to a back-in-the-black 90% recovery of what they lost during the recession. Hmm, is it time for a party in the USA?
Maybe not. Yesterday’s consumer confidence report showed that a lot of average Joes aren’t having as much fun with the country’s employment problems. The data printed a new five-month low at 50.4 in July, down from 54.3 in June.
If you’re as geeky as Dr. Pipslow, I bet you’re wondering how US companies whip up fatter profits without improving employment. Don’t those two come hand in hand?
Globalization is one of the reasons why the US labor market is still down in the ditches amidst good company earnings. Because American firms like to keep operations lean, they invest in production facilities outside the US to save on transportation and labor costs.
Take the all-American General Motors Company, for example. They used to employ 468,000 hourly workers back in 1970, but this figure is now down to 52,000. Before you start worrying about the good ol’ company goin’ broke, you should also know that they recently invested $250 million for a technology center in China.
Now, I don’t know about you, but something tells me that Americans aren’t going to be the ones receiving paycheck from GM’s production in China.
Another reason why employment has been down despite the rising company profits is that businesses have been investing in labor-saving technologies.
For instance, Ford Motors, another American favorite, reported a profit of $2.6 billion for the second quarter of 2010. That’s two-thirds of their record profit in 1999!
But you wanna know the kicker? The earnings figure was accomplished with half as many employees as the company had a decade ago. How’s that for labor productivity?
My last explanation for this interesting incident is that US companies are using most of their earnings to buy back their own stocks and pay dividends.
Let’s take a look at General Electric, a multinational American company. GE executives declared that they will be raising dividends by 20%, and announced that they plan to repurchase some of the company’s own shares.
Because investors were thrilled with the idea of bigger dividends, GE stocks skyrocketed by more than 5% of its value in a matter of days! Now that’s all good for the Armani-wearin’ dudes, but what about the typical American worker?
You see, companies could’ve put all that extra cash to better use by expanding capacity and exploring new business opportunities. Not only would that help stimulate the economy, but it would also provide much-needed support for the crippled labor market.
Sure, some may argue that it makes sense for companies to be cautious with aggressive expansion given the uncertainty surrounding the US economy, but sometimes you just gotta risk it to get the biscuit!
Many believe that easing employment problems in the US will help keep their economic recovery chugging. The problem is, how do you convince companies to hire if they’re making more money with fewer workers?