Bloomberg: Why Are Companies Complaining About Obama?
Remember how I told you that the Pelosicrats and Obamacrats have achieved an amazing feat of dissonance - a crappy economy for the lower and middle classes but a pretty decent one for upper classes.
Of course, leave it to Al Hunt & Co. to get the story entirely wrong, mistaking coincidence with causality. Corporate profits are up for, more or less, four reasons:
1) Layoffs and Restrained Hiring - Companies laid alot of people off in the wake of the financial crisis. They have not hired those people back because of intensive regulatory expansion from the Obama administration, uncertainty over Obamacare's rules, and outright hostility and attacks on business. Companies have made the conscious decision to do more with less, which is translating to higher productivity and profits.
2) Restrained Capital Expenditures - The uncertainties and hostility that the Obama administration has inflicted on the economy is keeping companies from making major project commitments. Capital not spent on undertaking new projects is an expense not incurred, an expense not incurred is a profit earned.
3) Cheap Dollar Drives Exports to Growing World - The rest of the world, barring Europe, is trying to get on with business and grow, so there has been very little of the anti-business sentiment like there has been in the US. And they need US-made goods. A dollar weakened by profligate spending and hyper-expanionary monetary policy makes those US-made goods cheap, so companies sell more abroad. More sales helps profits.
4) Low Interest Rates - In a vain attempt to counter the economic malaise pervading the US economy, the Fed has held interest rates at historically low levels, which has enabled corporations to refinance their debts and reduce interest costs by hundreds of millions of dollars. Lower interest costs are higher profits.
So it is Obama's policies that are driving US corporate profits up, but not in a good way. Obama's policies are making companies defensive and tentative and reluctant to invest in the future.
Mark Perry has a post up today that perfectly illuminates what I (and others) have highlighted about this economy - it sucks for the lower skilled but isn't too bad for investors and owners. Perry notes a guy who laments the sad state of the manufacturing recovery using Census data, while Perry highlights, using Census data as well, that manufacturing profits are booming. That's what Washington has created for us, a modest recovery that is accruing to capital and not to labor.Bloomberg touches on this phenomenon in an article titled "Corporate Profits Soar as Executives Attack Obama Policy".
Such complaints, echoed by corporate executives throughout President Barack Obama’s first term, obscure one fact: American business has never had it so good.
U.S. corporations’ after-tax profits have grown by 171 percent under Obama, more than under any president since World War II, and are now at their highest level relative to the size of the economy since the government began keeping records in 1947, according to data compiled by Bloomberg.
Of course, leave it to Al Hunt & Co. to get the story entirely wrong, mistaking coincidence with causality. Corporate profits are up for, more or less, four reasons:
1) Layoffs and Restrained Hiring - Companies laid alot of people off in the wake of the financial crisis. They have not hired those people back because of intensive regulatory expansion from the Obama administration, uncertainty over Obamacare's rules, and outright hostility and attacks on business. Companies have made the conscious decision to do more with less, which is translating to higher productivity and profits.
2) Restrained Capital Expenditures - The uncertainties and hostility that the Obama administration has inflicted on the economy is keeping companies from making major project commitments. Capital not spent on undertaking new projects is an expense not incurred, an expense not incurred is a profit earned.
3) Cheap Dollar Drives Exports to Growing World - The rest of the world, barring Europe, is trying to get on with business and grow, so there has been very little of the anti-business sentiment like there has been in the US. And they need US-made goods. A dollar weakened by profligate spending and hyper-expanionary monetary policy makes those US-made goods cheap, so companies sell more abroad. More sales helps profits.
4) Low Interest Rates - In a vain attempt to counter the economic malaise pervading the US economy, the Fed has held interest rates at historically low levels, which has enabled corporations to refinance their debts and reduce interest costs by hundreds of millions of dollars. Lower interest costs are higher profits.
So it is Obama's policies that are driving US corporate profits up, but not in a good way. Obama's policies are making companies defensive and tentative and reluctant to invest in the future.
posted by Donny Baseball at 2:22 PM
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