An Apple iPad
Unprecedented health among American businesses is not translating to benefits for ordinary Americans and the broader economy. Profits are up, and so is misery.
Some of America’s largest corporations — like McDonald’s and GE — began releasing second-quarter earnings reports last week, and the results are astonishing. Corporate profits are near all-time highs, accounting for nearly 90 percent of economic growth in the United States. The private sector is booming, with nearly $2 trillion in capital accumulated during their run of success.
But the corporate largess has meant little to no change for American workers. Unemployment is still over 9 percent. And non-existent wage growth is draining the lifeblood from the American middle-class.
Strong second-quarter earnings from McDonald’s, General Electric and Caterpillar on Friday are just the latest proof that booming profits have allowed Corporate America to leave the Great Recession far behind.
But millions of ordinary Americans are stranded in a labor market that looks like it’s still in recession. Unemployment is stuck at 9.2 percent, two years into what economists call a recovery. Job growth has been slow and wages stagnant.
“I’ve never seen labor markets this weak in 35 years of research,” says Andrew Sum, director of the Center for Labor Market Studies at Northeastern University.
Wages and salaries accounted for just 1 percent of economic growth in the first 18 months after economists declared that the recession had ended in June 2009, according to Sum and other Northeastern researchers.
In the same period after the 2001 recession, wages and salaries accounted for 15 percent. They were 50 percent after the 1991-92 recession and 25 percent after the 1981-82 recession.
Corporate profits, by contrast, accounted for an unprecedented 88 percent of economic growth during those first 18 months. That’s compared with 53 percent after the 2001 recession, nothing after the 1991-92 recession and 28 percent after the 1981-82 recession.
Where is all of this money going? To new jobs and expansion projects overseas. The current juxtaposition of high earnings for U.S. multinationals but weak employment and wages for American workers is simply a continuation of a trend that developed in the last decade. During the 2000′s, American corporations added over 2 million jobs overseas, but cut almost 3 million jobs in the United States.
More evidence of the corporate boom comes from the S&P 500, where the Wall Street Journal reports that earnings from the companies included in the listing of America’s largest corporations are at four-year highs, with a forecast of even greater returns for the second half of the year. Companies are doing “better than expected,” but it’s having little impact beyond the boardroom.
“The corporate sector is in great shape,” reports one financial market expert. Companies from Harley-Davidson to Apple are releasing eye-popping earnings that have yet to mean more jobs and higher wages for American workers.
So much for fears that U.S. companies might stall out in the economy’s soft patch.
Corporate profits are coming in better than expected so far in second-quarter earnings season despite concerns about the potential for trouble ahead.
Strong showings from blue-chip companies such as Apple, Coca-Cola and McDonald’s have put the quarter on track to set a new record for operating earnings.
“The corporate sector’s in great shape,” says Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “The economy is a little healthier than we thought it was.”
Aside from companies’ continuing stubbornness about hiring more workers, the early results are good news for investors and anyone worried that the debt-limit standoff in Washington or the financial crisis in Europe could inflict serious damage.
Consumers’ willingness to spend on fast food, electronic gadgets and other items has helped fuel better-than-expected quarterly results. Among the standouts:
• Apple Inc. more than doubled its profit to $7.31 billion on an 82 percent jump in revenue, further testimony to the runaway popularity of the iPhone and iPad.
• Coca-Cola Co. more than tripled net income to $5.77 billion as the world’s largest drink maker increased its strength in emerging markets, such as Latin America, India and China, while sales held stable in the U.S. and Europe.
• Harley-Davidson Inc. more than doubled its profit to $191 million, posting an increase in U.S. motorcycle sales for the first time since 2006 and expanding its market share overseas.
The outlook for jobs will remain bleak, too. Experts point to the spike in long-term unemployment and the data suggesting that there are 5 jobless Americans for every new job opening created by the private sector as statistics that portend to a lengthy period of high unemployment.
Even for those lucky Americans that have retained their job or found a new one, the misery is still abundant. While corporate profits and CEO salaries have exploded in the post-recession period, wages for ordinary workers have stagnated at a shocking pace.
A top economist with JP Morgan Chase finds that wages relative to company earnings and the nation’s GDP are at a 50-year low. And profit margins at corporations are rising steadily in the last decade, specifically due to ““reductions in wages and benefits” for employees across the board.
“Corporate America has a chokehold on wages,” blares a headline in the Miami Herald.
If you’re wondering why American consumers are still flat on their backs, rendering the economy similarly supine, the answer is both fundamental and simple: It’s not just that so many of them are unemployed. The ones who are employed are also underpaid.
Don’t take my word for it — take that of Michael Cembalest, the chief investment officer of J.P. Morgan Chase. He asserted in the July 11 edition of Eye on the Market, the bank’s regular report to its private banking clients, that “U.S. labor compensation is now at a 50-year low relative to both company sales and U.S. GDP.”
The primary subject of Cembalest’s report isn’t wages. It’s profits – specifically, the fact that profit margins (the share of a company’s revenue that goes to profits) of the Standard & Poor’s 500 companies are at their highest levels since the mid-1960s, despite the burdens of health-care costs, environmental compliance and other regulations that are presumably weighing down these large companies.
How can that be? To find the answer, Cembalest studied the rise in profit margins “from peak to peak” — that is, from their high point in 2000, just before the dot-com bust, to their high point in 2007, just before the financial crisis. In those seven years, profit margins rose from just under 11 percent of the S&P 500’s revenue to just over 12 percent. (Today, they’re near 13 percent.)
Why the increase? “There are a lot of moving parts in the margin equation,” Cembalest writes, but “reductions in wages and benefits explain the majority of the net improvement in margins.” This decline in wages and benefits, Cembalest calculates, is responsible for about 75 percent of the increase in our major corporations’ profit margins.
Or, to state this more simply, profits are up because wages are down. That’s not the only reason profits are up — innovation and offshoring factor in as well — but among the reasons, it’s a doozy.
Well, if it smells like the new feudalism servitude, looks like the new feudalism, and sounds like the new feudalism…………..
Welcome to the 21st Century version of serfdom!
You work harder and harder for less and less.
They take more and more.
Yet Through It All We celebrate how “productive” workers have become.
I knew it — celebrating “increasing worker productivity” was a dangerous concept a long, long time ago, and that it was directly tied to squeezing workers (and not just at the bottom of the income scale, either.)
Thanks for such a clear, evidence-based and informative post. Our country (w/the rest of the world in tow, for now) is in some weird kind of la-la land. we expect the Greedy to be greedy. It has always been so. But now those screwed by the greedy are… well, greedy FOR the greedy. We’re in cross section only lemmings, like toddlers being cooed at by our mother (who is now the receptor of profit) that “you’re perfect”.Our esteem is stroked while our wallets and souls are bled.
I keep reading that the recession is over, but still the jobless rate is above 9%. How are the corporations so profitable? Are the American people now unnecessary to the welfare of the corporations?
These poor corporations are being so unfairly put upon. :0( /snark.
They want to reap all the benefits of corporate personhood and suffer none of the consequences. And the perversity lies in the fact that, for the most part, they get what they want unlike a real person.
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