Let’s walk through the reality of our economy. Unemployment being down is less about the number of jobs and more about the number of people leaving the unemployment rolls or the workforce. We hear very little about large companies rehiring employees; however we continue to hear about layoffs. Many times, large company layoffs are accompanied by termination benefits that delay qualification of unemployment benefits. Other scenarios are workers are offered positions at competing companies picking up the marginal slack begin created by companies reducing output of product or services. The bottom line is that real Unemployment is not improving.
If real unemployment is not down, how can there be more jobs. I’ve often wondered by what standard this statistic is being measured. There are more people coming out of college, who are not being employed, then ever before. Our high school and college students are finding it more difficult now to find part time employment, because more adults are taking the often student filled part time jobs. Construction at all levels is down, regardless of the government stimulus packages. Manufacturing at the core level, the small job shops that make up the majority of our manufacturing base, are all down. Where are the jobs?
Finally, let’s discuss profits. The news will have you believe that a skyrocketing stock market and the posting of record profits are a clear sign that the economy is changing. Let us begin with a simple lesson on profit management for public companies. Percentages are the basis by which many companies manage their bottom lines. My clients are all taught that their profit is an expense and it should be based on a percentage of their overall business. So, if a business wants to make 10% after all expenses, it will plan for this as if it were expenditure. Let us assume this percentage does not change, so as costs go up, so do their revenues. If this same company is a core industry or one that is very broad like Internet Service, Computer Companies or Food Items, the demand for its products could remain somewhat stable. If this company, was a 10 million dollar a year company and made 10% in 2008 and now in 2012 its costs were raised by 30% so it passed on those costs so it could still make 10%, its revenues would be roughly 13 million and its profits would increase from 1 million to 1.3 million.
It is not hard to add zero’s to the profit equation and see why large multi-billion dollar companies are posting record profits that sound amazing to the general public. With consolidation occurring in almost every industry, revenues are increasing, but anticipated gross profit percentages are still being held to post consolidated levels; higher dollars are being posted as profits.
Our economy is not getting better. The rise in costs coupled with the decline in employment is not on a path that is healthy for our economy. The influx of added government money, reduction in interest rates and manipulation of information are prolonging us reaching the bottom of this issue.