Why the Dow is looking so healthy while the job market isn't

Easy.  The socially-sanctioned rapacity of the corporate sector.  But you knew that all along.

With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”....Nelson Schwartz, NYT

In a way, you could say that every time a worker loses his job, a fatcat strokes his pockets salaciously.  With this twist from the Fed.

The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

These factors, along with the Federal Reserve’s efforts to keep interest rates ultralow and encourage investors to put more money into riskier assets, prompted traders to send the Dow past 14,000 to within 75 points of a record high last week.

While buoyant earnings are rewarded by investors and make American companies more competitive globally, they have not translated into additional jobs at home. ...Nelson Schwartz, NYT

And the effects of sequestration?  The eventual loss of 700,000 additional jobs?

Wall Street does not expect the cuts to substantially reduce corporate profits — or seriously threaten the recent rally in the stock markets.

“It’s minimal,” said Savita Subramanian, head of United States equity and quantitative strategy at Bank of America Merrill Lynch. Over all, the sequester could reduce earnings at the biggest companies by just over 1 percent, she said, adding, “the market wants more austerity.”

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966. ...Nelson Schwartz, NYT

Corporate profits up; our incomes down.  Is that one component of the definition of "free market"?  Huh?

Comments

[Richard W. Crews]

definition of "productivity" ; we did it without you.

[rapier]

The number one reason stocks are rising is Federal Reserve action. That is QE, aka expanding their balance sheet by purchasing Treasury Notes in Open Market Operations, aka money printing.

There is a long standing high correlation between Fed actions and stocks. The simple reason is they buy Treasuries and now mortgage backed securities from institutions holding large quantities of financial securities. The moment they get the Fed cash they must buy other securities. They are not taking the $100+- billion a month and spending it on stuff. They are buying other financial assets and stocks are always part of that.