This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
Gavyn Davies recently had an interesting take on stock prices in the US. Davies made the point that the profit share in the US had risen substantially against the wage share in recent years, and then argued that this rise in the profit share is what currently underpins equity prices. Read more
US industrial production has grown at least twice as fast as GDP since the start of the recovery.
“Onshoring” work because wage differentials are narrowing plus falling electricity prices because of shale gas = more growth, so… great! Maybe? Read more
Last week continued a healthy discussion of the national income share that goes to capital versus labour. Or in layman’s terms, companies versus workers.
An earlier version of the discussion focused on whether technology or monopolistic behavior or some other non-cyclical reason was to blame. But the more recent iteration has been more about whether the trend has been exacerbated in the current recession-and-recovery period, contrasting the robustness of the corporate recovery against the sluggishness of jobs and income growth. Read more
A US GDP factoid that we missed last week, spotted by the econ team at Credit Suisse:
We would note that the profit share of GDP in the first quarter, reported in [last Thursday's] GDP revision, shrunk for the first time in the current business recovery/expansion. Without much stronger nominal GDP growth, and with the low hanging fruit of lower interest rates and debt service costs already having been harvested, restoration of margins is achieved mainly through reducing labor costs. This factor may prove more enduring for the employment data. Read more
The idea that the corporate profit train will have to crash, or at least slow down, in the not too distant future has been percolating for a while now.
The combination of company cost-cutting and policy-driven demand, both of which have been keeping margins and profits high, will soon come to an end. We’ve written about all this before and think it makes sense. Read more
Three-quarters of the companies that have so far reported second-quarter earnings have beaten estimates, but largely on account of international revenues rather than domestic profit, says the WSJ. General Electric, which saw overall revenues rise 21 per cent in the second quarter, experienced a 3.4 per cent drop in US earnings but benefited from double-digit growth in emerging markets. Corporate profits of this kind are unlikely to help the US jobs outlook any time soon. On the other hand, Apple and Coca-Cola have shown that it is possible to wring profit out of the US consumer, while Caterpillar, an emerging-markets stalwart, is now falling behind, Bloomberg notes.
Another missive on the US recovery from the SocGen bear-king Albert Edwards and, uh-oh, paging Ludwig Wittgenstein:
Words fail me Read more
Corporate America is leaving the flagging US economy behind, the WSJ says. Companies in the S&P 500 saw second-quarter profits increase 38 per cent compared to a year earlier, while all US companies saw a 26.5 per cent rise in post-tax profit over the same period — historic figures for postwar markets, if they aren’t adjusted for inflation. It’s the result of a massive and permanent restructuring wave across the corporate sector, the Journal adds — with the boards of many big companies wary of spending, costs have been cut and refocused, with thousands of jobs laid off or outsourced. The corporate bond boom continues in the meantime, the NYT reports, adding that companies are indeed using the cash to save rather than spend.