David Rosenberg Explains Why Corporations Are Rolling In Dough, And You're Not

The Business Insider ^ | 11-2-2010 | Joe Weisenthal

[blam]

David Rosenberg Explains Why Corporations Are Rolling In Dough, And You're Not

Joe Weisenthal
Nov. 2, 2010, 9:59 AM

David Rosenberg of Gluskin-Sheff explains why corporations are sitting pretty right now, and you're not.

WHERE’S THE INCOME?

Well, it is concentrated at the corporate level. Here is the story. Companies have no reason to hire or pay their workers more because they are sitting on so much idle capacity. So, cost-cutting and productivity gains manage to propel corporate bottom-line performance, hence acting as a critical antidote to lagging revenue growth. Remember, even at the business level, this has been a revenue-less recovery in profits.

Meanwhile, the lack of growth in labour input and compressed wage trends, characteristic of a jobs market gripped with chronic excess capacity, have left the household sector with absolutely no income growth of their own. This is both remarkable and disturbing. Indeed, personal income actually fell 0.1% MoM in September, far below consensus views of a 0.2% increase. The prior month was revised lower as well, now at 0.4% versus 0.5% before. The biggest source of weak income was transfers (mostly jobless benefits), which dipped in September, but wages and salaries were still marginally down as well.

Real personal income excluding government transfers, one of the four critical components of the National Bureau of Economic Research’s recession- expansion determination, was marginally negative again in September: -0.037% MoM, -0.003% in August, -0.018% in July. On an annual rate basis, it is down 0.4%, and does seem to have put in a peak in June.

In nominal terms, spending also came in below expected, rising only 0.2% versus consensus view of a 0.4% increase. In real, or volume terms, consumer spending eked out a 0.1% advance.

[snip]

[Wolfie]

You need one other thing for this to work: A scared workforce. People eyeing up the breadline will work harder for the same or even less.

[ripley]

And, the remedy is?

Just asking.

[BiggieLittle]

You don’t think the workforce is scarred now?

[traderrob6]

More regulation[S]

[agere_contra]

You know who else is rolling in dough? The Government and government workers.

Because the Government creates money by wishing it into existence, devaluing the money of actual wealth-producers as it does so.

So the article writer can spare us the phony class warfare.

[OldMissileer]

The company I work for is doing this. Corporate sales are up double digits, profit has increased over the planned percentages, yet they are cutting back personnel hours and still keeping all the requirements the same.

[television is just wrong]

Obama caused this top heavy money with his stimulus packages.

[television is just wrong]

nice,

[Wolfie]

Of course. That’s why everything’s still “working” for certain levels of society.

[KDD]

Tell me again why we should trust our backs to either party.

Both parties are equally to blame.

March 2008: Bush stimulus $29 billion for Bear Stearns/JP Morgan Chase deal
May 2008: Bush stimulus $178 billion in tax rebate checks
July 2008: Bush stimulus $300 billion for distressed homeowners
July 2008: Bush stimulus $200 billion for Fannie Mae and Freddie Mac
September 2008: Bush stimulus $50 billion to guarantee money market funds
September 2008: Bush stimulus $25 billion to Big 3 automakers
September-November 2008: Bush stimulus $150 billion to AIG
October 2008: Bush stimulus $700 billion to banks (TARP)
February 2009: Obama stimulus $787 billion in broad stimulus package
February 2009: Obama stimulus $75 billion for distressed homeowners
February 2009: Obama stimulus $200 billion for Fannie Mae and Freddie Mac
March 2009: Obama stimulus $30 billion for AIG
March 2009: Obama Stimulus $15 billion for small business lending
March 2009: Obama Stimulus $1 trillion to get toxic assets off bank’s troubled asset sheets
March 2009: Obama Stimulus $22 billion for Big 3 Automakers Chrysler and GM

[Alberta's Child]

Not exactly. One bit of irony here is that the "Bush tax cuts" may also playing a role in this. The lower rates on corporate dividends serve as an incentive for companies to distribute profits to their shareholders rather than invest these profits in capital projects that may result in future growth.

If you go back over the last 50 years or so, I bet you'll find that this country enjoyed its strongest growth when there was a large gap between tax rates on income/dividends and capital gains. When you narrow (or even eliminate) that gap, you remove a big incentive for companies and investors to pursue growth in their business/investing approach.

[ripley]

A respectful request; Please explain.

Best Regards.

[traderrob6]

Sarcasm.

[blam]

"And, the remedy is?"

Remedy?

IMO, it's already to late.{"There's No Way Back From Here")

We're headed for a complete collapse. When is the only question.

[familyop]

"We're headed for a complete collapse. When is the only question."

Agreed. In my State (CO) there were two proposed amendments and a proposition aimed at keeping government employees from continuing to arbitrarily and steeply raise taxes (some through "impact fees" and the like). Republicans as well as Democrats voted overwhelmingly against those measures (spoken against by sheriffs' depts., teachers, other government politicians/employees).

Many Republican retirees are going to be really sorry that they didn't vote for those measures. They'll be driven out of their homes and starving before it's all said and done (i.e., before the great default).

[ripley]

“When is the only question.”

There was always optimism here that it could be reversed, but it seems they have succeeded in their objectives.

IMHO