Jobs report points to better profits, at workers’ expense
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Today’s rally on Wall Street -- with most market indexes up between 1% and 2% -- doesn’t tell us much, given that so many players already were gone for the long weekend. Trading was thin.
But it isn’t surprising that the market was happy enough with the August employment report, which showed a smaller-than-expected net loss of jobs (216,000) but a jump in the overall unemployment rate to 9.7%, a 26-year high.
In the context of many other economic reports since June pointing to the beginning of a recovery, the underlying employment data suggest that the early benefits of any recovery will flow directly to many companies’ bottom lines. That’s good for stock prices.
Carlos Torres at Bloomberg News puts it quite succinctly:
Employers kept Americans’ working hours near a record low in August, indicating that economic growth is poised to reward companies with added profits while postponing any recovery in the job market. The average workweek held at 33.1 hours, six minutes from the 33 hours in June that was the lowest since records began in 1964, the Labor Department said. The preconditions for gains in payrolls, including giving the army of part-timers longer hours and taking on additional temporary employees, weren’t met last month. At the same time, with economic growth forecast to resume this quarter, the figures set the stage for a surge in worker productivity and drop in labor costs that will stoke corporate profits. ‘It’s disappointing and it tells us that we are not quite there yet,’ said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ‘It’s great for business and terrible for households’ for coming months, Feroli said.
Longer-term this situation isn’t sustainable, as has been much discussed this summer. Without job and income growth consumer spending will remain depressed, stunting any economic recovery.
It’s also likely, though, that as corporate profitability rebounds layoffs will become less likely and more companies will look to hire to provide relief to depleted and overworked staff.
At least, that’s how economic rebounds are supposed to progress. If businesses don’t follow the script they’ll boost the risk that the economy will stumble back into recession in 2010.
Surely managements must know this.
-- Tom Petruno