Date: Mon Mar 27 2006 09:25
trotsky (Bleuler, 6:50) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
as is often the case with mainstream fare, the article just scratches the surface, without looking at the devil that is in the details.
1. "The dawn of this heyday came in 1995. In the two preceding decades, the productivity of American workers had grown more slowly than that of Japanese and European competitors. But in the decade since 1995, U.S. labor productivity growth has outstripped foreign rivals'."
it's not even true ( German and Japanese productivity has continued to rise faster during the 90's, if the Economist is to be believed ) , but in any case, the recorded IMPROVEMENT in productivity has largely to do with a change in how it is being calculated. in short, it's a statistical trick, rooted in inflation calculations that don't measure the same living standard over time. two features, substitution ( when beef gets too expensive it is replaced with chicken, and when that gets too expensive consumers presumably settle for dog food ) and hedonic indexing ( the counting of dollars that nobody spent and nobody received to account for alleged quality improvements in goods, which naturally is a highly subjective judgment ) , both have been introduced around the time when productivity suddenly began to sharply improve overnight - along with inflation, and reported 'real' GDP growth, all of which depend on the same statistical measures.
2. "Meanwhile U.S. firms' return on equity -- that is, the efficiency with which they manage the capital entrusted to them -- has pulled away from that of Japan, France and Germany, according to data provided by Standard & Poor's Compustat."
the story of US corporate profitability is strongly overhyped. let's look at various sub-sectors in detail. the following is the profit performance between 1997 and 2004:
1.Nonfinancial: '97: $508,4bn. - '04: $534.2bn. ( +5.1% ) - cumulative in 7 years!
2.Manufacturing: '97: $209bn. - '04: $118.9bn. ( -43.1% )
3.Durable Goods: '97: $103.1bn. - '04: $34.8bn. ( -66.2% )
4.Nondurable Goods: '97: $105.9bn.- '04: $84bn. ( -20.7% )
5. Wholesale Trade: '97: $47.6bn. - '04: $63.5bn. ( +33.4% )
6. Retail Trade: '97: $64.2bn. - '04: $90bn. ( +40.2% )
7. "Other" : '97: $103.4bn. - '04: $224.3bn. ( +116.9% )
source: Bureau of Economic Analysis, table 6.16C
so we can see, the bulk of US corporate profit growth are in wholesale and retail trade ( selling things to each other, most of which have been made somewhere else ) , and the real kicker is 'Other'.
according to the requisite footnote, 'other' comprises: "construction, real estate and rental and leasing, administrative and waste management services, educational services, health care and social assistance, entertainment, recreation,
accommodation and food services, except government."
'Other' accounted for 42% of total US nonfinancial profits in 2004, and it's a good bet that the housing bubble is the major culprit, along with soaring educational and health costs.
meanwhile, manufacturing profits have collapsed - while the bulk of the reported 'productivity improvements' that give the hedonically indexed inflation, productivity and GDP stats their 'kicker' - are from manufactured goods!
meanwhile since the stock market bubble's peak in 2000, business fixed investment has grown by only 4.5% ( i.e., it's up 4.5% in TOTAL in 5 years ) , badly lagging reported 'real' GDP ( +13.4% ) , consumer spending ( +16,6%, of which spending on durable goods +31.8%, residential building +34.7% ) , government spending - note, this 'contributes' to GDP but is essentially a waste of resources - ( +15.3% ) , exports ( +8.8% ) , imports ( +23.7% ) .
very large profit growth has of course taken place in the financial sector - which has levered up on the housing bubble in an unprecedented manner. a full 63% of the US banking system's assets are now tied to real estate, the most a banking system has ever been exposed in this area.
so essentially we can state, the quality of the nonfinancial profit performance of US corporations is truly dismal - only sectors that either are 'safe' from foreign competition , or are directly dependent on the enormous credit bubble in recent years are performing well. the goods producing sectors of the economy have in essence suffered a profit collapse, and in view of the lack of investment ( and as a corollary, the disappearance of savings ) , this is unlikely to change. the entire edifice is held up by a statistical mirage and the biggest mountain of debt in mankind's history.
|
