Tuesday, August 06, 2013

Economy: Business is Looking Good, Employment Prospect Fairly Poor and Economy Overall Mediocre at Best

comments on: Very interesting charts. What story do you think they tell?

A misleading one by and large.

I don't believe "Fewer Americans" are working today - I believe a lower percentage of working age people are employed.

A significant portion of the wage issue is due to economic conditions and the market. Productivity increases are wonderful but, at a point they can make hiring labor less appealing (especially when combined with things like a hugely burdensome health care system that has been broken for decades).

There is a portion of the wage issue that has to do with executives today acting like the robber barons of old. That behavior was despicable and is today. A portion of the wage problem is due to the ethical and business failures of these executives.

Business profits are due mainly to lots of good things (higher productivity, better management of inventory and cash, innovation...) but is also due to some financial games (the huge bailouts to the still too big to fail institutions has created massive distortions including artificially low interest rates which juice corporate profits by artificially reducing borrowing costs).

If the message is regular wage earners (and hopeful wage earners) don't have things as great as they did in the 1960's USA - that is correct (and not as good as 1970s - even with the oil problems - or the 1980s - even with stagflation...). The prospects for workers are worse than prospects for the economy in my opinion - for the next year, 5 years, 20 years... The prospects for businesses may well be even better than for the economy.

It is definitely true people have failed to see how well business has been doing in the last 5 years - the story has mainly been about how bad the economy was. To the extent the message is business is doing very well, that is also a correct message. There is a large risk for those businesses that have foolishly leveraged themselves to try and justify ever increasing payments to executives that do juice results when things go well but have very bad consequences otherwise.

They also distort things using fake "special items charges" to take huge losses that they claim are "special causes" when they are "common causes." This serves to make gains seem part of the business and huge losses some mysterious act of god or something outside the executives responsibilities. leverage exacerbates this practice.

Related: The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects (2011) from my investing blog - Where are Profit Margins Headed? - Uncertain Economic Times

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