On Hiring and Earnings (One May Suffer Next Quarter)

April 3, 2012 10:41 am

Last Friday, Bloomberg’s Joesph Brusuelas wrong an intriguing piece in the daily Economic Brief. Basically, he shows how there is an income inequality when comparing corporate profits and employee compensation. As it stands, the companies are winning that game.

He also points out that:

At a time when it is likely that growth will slow following the increase in inventories that accounted for roughly two-thirds of all growth in the fourth quarter, increased hiring and rising capital expenditures are necessary to sustain a soft expansion. Even with the improvement in the economy, the nature of its growth remains asymmetrically tilted toward the corporate sector and the wealthy.

So, when it comes to a choice between what is best for either the company or the the employee, the company prevails. He continues:

The decline in non-farm productivity that was observed in 2011 generally presages a slowdown in corporate profits. Throughout the recovery the primary reason for the increase in corporate profits has been a massive reduction in labor costs. The source data that feeds into the calculation of gross domestic product indicates that overall economic activity will slow from 3 percent to somewhere between 1.5 and 2 percent this quarter.

I have always been curious how profitability can continue if hiring is up while revenues are relatively flat. It appears that Joe agrees:

Given the slowdown in productivity, it will be difficult for firms to achieve profits comparable to recent levels if they choose to continue hiring during what is shaping up to be a sluggish first half of 2012.

Perhaps the clues dropped by Mr. Bernanke recently about the potential for a turn higher of the unemployment rate were actually more than just comments to justify his dovish stance.

Be Sociable, Share!

false

Be Sociable, Share!