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Posts Tagged ‘corporate profits’

High Corporate Profits do not cause hiring. High demand causes hiring

August 30, 2011 1 comment

Last quarter, corporate profits were at an all time record as a percentage of GDP.    Yet, we still have high unemployment.

This isn’t a mystery – it’s historical fact.

Keep the meme alive!

Businesses hire when they are swamped with demand, not when they have high profits.   

Kevin Drum knows the simple truth about hiring

June 20, 2011 Leave a comment

Kevin Drum:

“…but companies don’t expand and hire more people because their corporate treasuries are flush. They expand and hire more people when they think demand for their goods and services is strong.”

It’s really true.  Companies hire when they are swamped with demand, not when profits are high.

Then, he goes on to show that the corporate tax holiday for repatriated profits is a scam.  It’s a great post all around.

 

 

High Corporate Profits do not cause Businesses to Hire

June 16, 2011 6 comments

Red is employment, Blue is Corporate Profits

I know, I am beating a dead horse here.  But us liberals need to get used to saying things more than once, and in more than one way.   I took the same old chart I’ve been using for a while.  It shows the growth in Corporate profits in Blue, and the growth in employment in Red.

In the 1990′s Corporate profits were growing well, but not great.  Employment was going gangbusters.  In the 2000′s, Corporate profits were incredible – but hiring was bad.

If we just compare the decades for the two different lines, it is quite clear.  The 2000′s had 5 straight years where corporate profits were higher than the best growth in the 1990′s.  The 1990′s had nearly 5 straight years where employment was growing as the best growth in the 2000′s.

I added some captions to the chart.  Feel free to pass it around so people understand this.  High corporate profits do not cause businesses to hire.

I do not know why anyone would claim that high corporate profits causes hiring more than high demand.

Businesses hire more people when they are swamped with demand, not when they have high profits.

Businesses hire more people when they are swamped with demand, not when they have high profits.

June 16, 2011 12 comments

We just lived through the fastest rebound in corporate profits since the 1940′s.  Did your company hire?

Here is Bloomberg making an astounding observation:

“Earnings will climb an average 10 percent a year through 2013, more than three times quicker than the economy, after what has already been the fastest rebound since the late 1940s, JPMorgan Chase & Co. projects. “

The fastest since the late 1940′s!   Where is the hiring now?

There is a weak relationship between corporate profits and hiring.   We’ve had high corporate profits for nearly 2 full years – but last month we added employed only 54,000 more people.  High Corporate profits do not cause businesses to hire!

Businesses hire more people when they are swamped with demand, not when they have high profits.

I made this unsupported statement about how high demand causes hiring, and not corporate profits.   But unsupported does not mean untrue.

Over at the Big Picture, Invictus does the work I did not.  He shows a comparison of retail sales and employed people.   Raising retail sales means greater demand.  Retail sales and hiring are strongly correlated.  The chart is quite clear about the relationship, but Invictus goes into nice detail about how this works.   The reason for this is because retail sales is a direct measure of demand.

The Bloomberg article makes a claim that simply is not supported by any evidence.  They claim in this article that high corporate profits are about to cause a hiring spree.  I don’t see this in the data at all.

If you read the entire Bloomberg article, you’ll see that there are almost no lines about actual hiring in the entire article.   There is plenty of talk about increased corporate profits. There is talk about “Gunpowder” to hire, or “growing businesses” due to high profits.   But there is not much talk about how that means actual hiring.

I am far more concerned about where and how actual hiring will take place.

Hiring tends to take place when companies have to turn away business to their competitors because they do not have the manpower to take that business.

Red is employment, Blue is Corporate Profits

Look at the late 1990′s in this chart of corporate profits against changes in employment.   The late 1990s did not have rapidly growing corporate profits, but the hiring was just incredible.  That’s because businesses were swamped with demand.

Businesses hire when they are swamped with business, not when they have high profits. High profits can be related to demand, but high demand is not necessary for high profits.

Focusing on making businesses more profitable will not end our slump.  Focusing on increasing demand will end our slump.

Businesses hire more people when they are swamped with demand, not when they have high profits.

Businesses do not hire more people when Corporate Profits are high

June 9, 2011 4 comments

Corporate Profits vs. Employment

Here is a quick chart I made over at the Federal Reserve bank of St. Louis of Corporate profits and hiring since 1990.

The red line is the growth in employment since the prior year in percent.   The blue line is the change in corporate profits since the prior year in percent, inflation adjusted.

You can see that the corporate profits were growing at a faster rate in the 2000′s compared to the 1990′s, but the rate of employment growth was lower.

This is not rocket science.  This is easy to think about, and the data is easy to find.

Businesses hire more people when they are swamped with demand, not when they have high profits.

High Fiber: Find out why your broadband stinks Friday night

May 12, 2011 Leave a comment

Ever wonder why your broadband is so sloooow?   Well, you aren’t the only one.

Rick Karr is an top notch investigative journalist – he’s done pieces with Bill Moyers, great video pieces for Engaget, and tons of radio for NPR.  If you were listening to NPR on 9/11, you definitely heard him-  he was reporting live from NYC for NPR during that tragic day.

Rick’s been covering the problems with the internet here in the U.S. for a decade now.  He has a new documentary out on why the internet stinks in the U.S. when compared to the rest of the world.  There are reasons we have low broadband speed and high prices.  You probably won’t be to happy when you find out those reasons, and you’ll probably feel ripped off.

His new video piece on our internet problems is called “High Fiber”. It’s on PBS’s “Need to Know” tomorrow night, Friday May 13.

In New York, “Need to Know” airs Friday evening at 8:30. The piece should air at around 8:40.

In other markets, please “check local listings”, as they say.

Elsewhere in the world, please look for the piece online — as of Saturday — at pbs.org/needtoknow.

Fortunately for me, we’ve been dear friends for decades.  I’d be a pauper if I owed him for every time…  :)

[Update:  added the photo, and changed the title once I realized it pushed the payoff forever into the future]

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Long Tech in December- Right reasons, it seems.

April 20, 2011 Leave a comment

Remember this blast from late December?

But I think the argument for Tech Stocks Right Now! in massive size is very compelling.

  1. Businesses have put off tech spending for a few years – and this may as well be 50 years for a normal industry.   Tech decays in usefulness quickly.
  2. Tech spending is the first to get cut in a downturn, because you can put it off for a bit.  However, it comes back on line quickly if there is a recovery, because it is cheap.
  3. There are many new business focused software techologies coming on line next year that will be staggeringly useful for businesses.

The business depreciation acceleration is coming at a perfect time for business spending, but it will have an outsized impact on tech spending within the business community.  It will have a particularly strong impact on tech spending this year.  In the past, current spending gooses tech stocks enormously.

Go long, long, long Tech!

Check out this article from Bloomberg:

Intel Corp. (INTC) and International Business Machines Corp. (IBM) issued sales and profit forecasts that reflected demand from companies eager to upgrade computer systems left fallow during the recession.

IBM, the largest computer-services provider, boosted its full-year profit forecast, while Intel, the top chipmaker, forecast second-quarter sales higher than analysts predicted. VMware Inc. (VMW) and Juniper Networks Inc. (JNPR), two other business- technology providers, also met or topped analysts’ projections.

The entire article is essentially a recap of my post from December.

Go Long Tech

December 23, 2010 1 comment

I don’t always fade the Mad Hedge Fund Trader like I did recently in bonds.  Right now, Tech stocks are poised for a huge, huge rally.  The MHFT is a sharp guy, and I was surprised to see his top down treatment from such high level in this article.   I agree with all of it.

But I think the argument for Tech Stocks Right Now! in massive size is very compelling.

  1. Businesses have put off tech spending for a few years – and this may as well be 50 years for a normal industry.   Tech decays in usefulness quickly.
  2. Tech spending is the first to get cut in a downturn, because you can put it off for a bit.  However, it comes back on line quickly if there is a recovery, because it is cheap.
  3. There are many new business focused software techologies coming on line next year that will be staggeringly useful for businesses.

The business depreciation acceleration is coming at a perfect time for business spending, but it will have an outsized impact on tech spending within the business community.  It will have a particularly strong impact on tech spending this year.  In the past, current spending gooses tech stocks enormously.

Go long, long, long Tech!

 

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The Obama Boom begins: Small Business Confidence Improves

December 21, 2010 1 comment

More good news: Small business confidence is up after years of bad prints.

Confidence is not actually good yet, but another mark on the positive news side.

The years of high deficit spending is producing massive corporate profits, and the bank sector no longer matters to the real economy.   Most stock analysts are not aware of the amazingly strong relationship between government deficit spending and corporate profits.  My guess is that this relationship will dominate any other relationship out there.

What will be known as the Obama boom has begun.

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