Zachary Karabell warns that better corporate earnings of late and the increased stock prices that have accompanied them are not necessarily a bellwether of better times for the broader US economy (WSJ):
That suggests the connection between corporate profits and robust economic recovery in the U.S. is tenuous at best. In fact, the financial crisis hastened the trend toward efficiencies, toward leaner inventories, and towards integrating both technology and global supply chains that has been taking place over the past decade.
That has led to severe pressure on the American working class and eroding employment. As these companies profit from global expansion and greater efficiency, they have little or no reason to rehire fired workers, or to expand their work force in a U.S. that is barely growing. If you are a global company, you want to hire and expand where the most dynamic growth is. Unfortunately for Americans, that's not the U.S.
So we are facing a conundrum: Companies can grow by leaps and bounds--by double-digits--and yet unemployment can skyrocket and remain high. There is nothing on the horizon that would lead one to expect a turnaround in the employment picture.
The only thing certain about the current economic downturn is that appears to be unlike most of the previous recessions we've experienced and trying to make future projections about where the economy is heading based on indicators from the past is a fool's errand. Higher corporate profits and rising stock prices are no doubt encouraging signs, but until we see a real improvement in the employment numbers it's going to be hard to say that a true recovery is underway.
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