OFF THE CHARTS
U.S. Companies Thrive as Workers Fall Behind
By FLOYD NORRIS
August 9, 2013
AMERICAN companies are more profitable than ever — and more profitable than we thought they were before the government revised the national income accounts last week. Wage earners are making less than we thought, in part because the government now thinks it was overestimating the amount of income not reported by taxpayers.
The major change in the latest comprehensive revision of the national income and product accounts — known as NIPA to statistics aficionados — is to treat research and development spending as an investment, similar to the way the purchase of a new machine tool would be treated by a manufacturer, rather than as an expense. That investment is then written down over a number of years.
The result is to make the size of the economy, the gross domestic product, look bigger, and to appear to be growing faster, in years when new research spending is greater than the amount being written down from previous years. For the same reason, corporate profits also look better in those years.
A lot of money is spent on research and development. Nicole Mayerhauser, the chief of the national income and wealth division of the Bureau of Economic Analysis, which compiles the figures, said that in 2012 the total was $418 billion, about one-third of which was spent by governments. That amounted to about 2.6 percent of G.D.P.
The other major conceptual change deals with pensions. Until now, corporate and government contributions to pension plans were counted as personal income only when the contributions were made. Under the revision, the government estimates how much should have been contributed to meet the promises made to workers, and counts that amount, whether it is higher or lower than the amount actually put into the pension plan. That causes personal income to appear larger in years when pension contributions are lower than they should be.
The revised numbers also reflect some better information as new data becomes available. Ms. Mayerhauser said that it now appeared that in recent years the government might have overestimated the amount of income that went unreported by taxpayers, including the amounts of unreported tips received by restaurant employees. Revising those figures down meant that workers as a group appeared to be doing even worse than they had appeared to be doing.
And that was none too well. Before the figures were revised, it appeared that wages and salary income in 2012 amounted to 44 percent of G.D.P., the lowest at any time since 1929, which is as far back as the data goes.
But the revisions cut that to 42.6 percent, which matched the revised 2010 figure as thelowestever.
The flip side of that is that corporate profits after taxes amounted to a record 9.7 percent of G.D.P. Each of the last three years has been higher than the earlier record high, of 9.1 percent, which was set in 1929.
The charts help to demonstrate how the post-recession economy differs from the one before the downturn. In the three years from 2005 through 2007, the share of G.D.P. going to corporate profits was 1.5 percentage points lower than it was during the years 2010 through 2012. The share going to workers was 1.1 percentage points higher during the earlier years.
Corporate taxes, as a proportion of corporate profits, rose to a four-year high of 21.6 percent in 2012, but remained well below the long-term average level. Personal taxes also hit a four-year high, at 14.1 percent of personal income, but were still well below the historical average.
The market crash in 1929 may not have caused the Great Depression, but it predicted it.
Ben Bernanke, the great student of the Great Depression, came on the job just before the crisis hit in 2007, almost as if the powers that be ‘knew’ what the agenda was and brought on the Great Mathemagician to “make sure the Fed would not make the same mistakes it made in the 1930’s”, as Bernanke himself put it years before the crisis.
In 1987, following another boom and crash, there were more than a few folks around who noticed the similarities in the market to the pattern from 1929 -- some before the fact, some after -- who thought it might lead to another great economic contraction.
Then in 2008, we got a slow-motion train wreck. While the Fed clearly thought the issues that led to and exacerbated the crisis were contained as it was in front of their face, Ben Bernanke wasn’t about to make the same mistakes as the Fed in 1929, right?
No, if the Fed was going to make mistakes this time, it was going to be a whole new deal.
So while the market itself may be the best predictor of coming events, since 1987 and the big Greenspan Put and especially since 2009 and the really big Bernanke Put, what does the market know and when did it know it? Can we trust price?
Today, it seems that big money is investing virtually entirely on the premise and assumption that the Bernanke Put and the Fed will save the day as long as everybody plays along and stays in line. Don’t fight the Fed isn’t just a saying now; it’s become a neon maxim lighting up the sky as if in some psychedelic world of investing where Timothy Leary is Chairman of the Fed.
What is similar about 1929 and 2013 is that both periods saw some of the best and the brightest economists and investors embracing the Fed’s ability to manage the economy.
Is the strength in the market due to the economy actually improving or is it a result of ‘The Hand’, where those inside the loop have figured out how to game the system and arbitrage the market place, driving it higher and higher in a marathon of basket programs and futures laced with algorithms and HFTs to the point where no one can really figure out what the market is or what it is really seeing.
All you have to do is look at 2008 to see that derivatives and their assumptions can explode in unexpected ways.
All you have to do is look at the perfect relationships every day between heavyweight index names like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) to see the manipulation. AAPL goes down, GOOG must go up to compensate, and vice versa. Throw a little IBM (NYSE:IBM) in for good measure in case a real buyer or seller comes to market.
The current ‘permanent plateau’ of frenzy is similar to the 1987 portfolio insurance insanity where the idea of risk was dwarfed against a belief in derivatives.
But sometimes risk is just risk and cannot be hedged away.
Going into 1929, the belief in the Fed roared its golden roar in the market.
Ditto 1987, when Alan Greenspan rode in on a white stallion when portfolio insurance blew up after the belief that risk could irrevocably be hedged peaked.
It’s almost as if that period in the Roaring ‘90s yearned to reenact the Roaring ‘20s with the belief that the omniscient, omnipotent Fed was managing the market and steering the economy to permanent prosperity.
It’s almost like 2013 is trying to repeat the past and roar again like it did in 1929 and 1987 and 1999: the current record stretch in the Dow Jones Industrial Average of no more than 3 days against the trend hasn’t been seen at least since 1900.
Prove them false! Who is pouring money into the stock marker certainly not the middle class who is struggling to get by. So who is filling the gravy train. One on plumber oh wise give an answer not a wise ass one either.
So the NY Times, using this administration's "revised" (LOL!) numbers, show that corporations are doing great, and people who rely on tips are doing worse than thought.
Wow, is this surprising and counter-intuitive! The fact that these "facts" jibe with the constant class warfare pushed by Obuttocks, his corrupt administration, and the lapdog media should in no way make us doubt any of these things.
...financial markets down significantly since two weeks ago. How low will it go?
My guess is this is a 10% correction from the highs. Fed tapering is supposed to start in Sept, and the markets won't like that once it happens. Remember the old saying the trend is your friend. It might be time to head for the sidelines.
The nation's unemployment rate drops to 7.3%, but that's mainly because more Americans stopped looking for work.
September 6, 2013
WASHINGTON — U.S. employers added 169,000 jobs in August and much fewer in July than previously thought. The slowdown in hiring could complicate the Federal Reserve's decision later this month on whether to slow its bond purchases.
The Labor Department says the unemployment rate dropped to 7.3 percent, the lowest in nearly five years. But it fell because more Americans stopped looking for work and were no longer counted as unemployed. The proportion of Americans working or looking for work fell to its lowest level in 35 years.
July's job gains were just 104,000, the fewest in more than a year and down from the previous estimate of 162,000.
Employers have added an average of 148,000 jobs in the past three months, well below the 12-month average of 184,000.
The markets are being flooded with cheap money, but the hiring continues to be lagging behind. I am a loss for answers. I will await for the from the more understanding of the markets and their lack of affect on the jobs.