> Date: Tue, 18 Dec 2001 14:22:29 -0600 > From: Alejandro Valle Baeza <avalleb@prodigy.net.mx> > Subject: [Fwd: WHAT DOTH IT PROFIT? > WHAT Corporate America is seeing an unusually severe slump "NOTHING > contributes so much to the prosperity and happiness of a country high > profits," proclaimed David Ricardo, an early-19th-century economist. so, > America is in a miserable state: corporate profitability has fallen to > lowest level since the depression of In the third quarter of this year, the > pre-tax profits of non-financial fell by 26% from a year earlier, to a level > equivalent to 7.5% of GDP in non-financial business sector. As recently as > 1997, that figure was Profits have further to fall. Economists at J.P. > Morgan forecast that profits will drop at an annual rate of over 20% this > quarter, leaving margins at their lowest for more than Profit margins always > shrink in recessions, but this time the squeeze particularly severe. Because > companies have so much excess capacity, they little pricing Meanwhile, unit > labour costs are rising more Wages still outpace inflation by a wide margin, > and productivity America entered this recession with historically low > inflation. As a nominal GDP growth is likely to be close to zero over the > next two which will put even more pressure on profits. Wages, which make up > of total costs, typically move down only reluctantly, so profits The 2.9% > jump in consumer spending in October, the biggest increase on brought cheer > to those betting on a strong economic recovery. The jump, largely reflected > aggressive discounting, especially by car makers retailers. Discounts may > boost volume, but at a high cost to Stockmarkets rallied strongly this week > in hope that economic recovery, hence higher profits, is around the corner. > But even if the economy turns early next year, a strong rebound in growth is > unlikely so long firms saddled with excess capacity. And as long as nominal > GDP growth subdued, so too will be the growth in profits. That means that > investors are likely to be disabused, and also that firms will be pressure > to improve their finances by making further cuts in investment jobs. And > that could prolong Stockmarket bulls point out that productivity growth has > held up better this recession than in the past, offering better hope of > faster profits in future. The link between productivity growth and profits > is complicated, however. Over the past three years, as productivity growth > quickened, profit margins have actually fallen. 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