As US Economy Plods And Pay Lags, Companies Profit
The Dow Jones industrial average has jumped nearly 20 percent this year, closing at 15,639 on Monday, just below its record high.
"If we ended the year at these levels, it would be a phenomenal year," said Bob Doll, chief equity strategist with Nuveen Asset Management.
Here are factors economists cite for the gap between healthy corporate profits and subpar economic growth:
a¿¿ FLAT PAYWages and salaries equaled just 42.6 percent of the economy in the April-June quarter, near a record low set in 2011. More than 8.5 million jobs were lost in the recession and its aftermath, leaving workforces leaner and more productive. Corporate revenue rose as the economy recovered. But workers haven't benefited much. With unemployment still high, they've had little leverage to demand higher pay. Many have been happy just to have a job. "We've just had a very lopsided economic recovery," said Ethan Harris, an economist at Bank of America Merrill Lynch. Smaller paychecks have deprived Americans of money to spend. In the 30 years before the recession, consumer spending grew an average of 3.4 percent a year. Since 2010, just after the recovery began, it's risen just 2.2 percent a year. "If workers don't have any money, businesses don't have any customers," said Nick Hanauer, an entrepreneur who has written about U.S. economic disparities. The stock market's gains have boosted total U.S. household wealth. But they haven't enriched most Americans. The wealthiest 10 percent of households own about 80 percent of stocks. a¿¿ COST CUTTING This week, Kellogg said it would cut about 7 percent of its workforce a¿¿ 2,200 jobs a¿¿ by 2017. The cuts are part of a "global efficiency and effectiveness program," the company said. Even though Kellogg's sales were flat in the July-September quarter compared with a year earlier, it squeezed out 2.5 percent more net income. A key factor: It cut administrative and borrowing costs. Its shares have risen 15 percent in the past year.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts