Skip to comments.Why Stocks Are Surging as Jobs Disappear (Dow is up, Jobs are down, what gives ?)
Posted on 10/16/2009 8:00:56 AM PDT by SeekAndFind
Stocks are up. Jobs are down. So if you're an investor you're enjoying a vibrant recovery and if you're a worker it still feels like a grinding recession.
Since bottoming out in March, the stock market has soared by about 60 percent, one of the most awesome rallies in market history. The Dow Jones Industrial Average cracking 10,000 may not be strategically significant, but it's a psychological breakthrough that's worth cheering after the demoralizing crash that preceded it.
While the Dow has been racing upward, however, the unemployment rate has also skyrocketed, from 8.5 percent in March to 9.8 percent now. The economy has lost 7.2 million jobs since the recession began at the end of 2007, and the trend is still going the wrong way. The unemployment rate will almost certainly hit 10 percent and hover near there for awhile in 2010, before gradually declining.
So are job losses good for the stock market? Actually, yes. At least for awhile. Stocks are rising because many companies are earning more money than analysts have expected. But earnings aren't up because companies are selling more stuff; most companies are still selling less stuff and grappling with falling revenue. Instead, earnings are rising because companies have cut their costs more than revenues have fallen. And "costs" are often the same as "jobs." Consider these snippets from some recent earnings reports:
Johnson & Johnson. Third-quarter revenue was down 5.3 percent but net earnings rose 1.1 percent.
Domino's Pizza. Third-quarter revenue down 6 percent; net earnings up 77 percent.
Abbott Labs. Third-quarter revenue up 3.5 percent; net earnings up 36.5 percent.
Pepsi. Third-quarter revenue down 1.5 percent; net earnings up 9.5 percent.
Alcoa. Third-quarter revenue up 9 percent, compared with the second quarter; net earnings swung from a $459 million loss to a $124 million profit.
All of those companies have laid off workers over the last two years, probably necessary to keep the company healthy. And it's worth keeping in mind that when earnings outperform revenue, it's a sign that the company is well-run (assuming there's no Enron-style hocus-pocus). But CEOs also know that you can't grow a company or keep juicing the stock price by cutting costs and slashing jobs. Real growth only comes from new customers, new business, and increased revenue. And on that measure, the outlook is murky for the stock and job markets both.
The same workers who have been getting laid off, improving the cost profile for many companies, are also consumers running out of money to spend. Some are going bankrupt, defaulting on bank loans, and losing their homes. That's a major risk to corporate profitsand stock pricesdown the road.
Some companies will be able to coast for awhile. The weak dollar and relatively strong economies in Asia and parts of Europe and South America, for example, are good news for U.S. exporters, since it helps them offset weak U.S. sales with stronger business overseas. And more-efficient companies can withstand lean times longer. But most American companies still rely on American consumers to keep business humming. Sooner or later, the U.S. job and stock markets need to go in the same direction.
The question is whether the job market will hitch onto the coattails of the stock market, with companies starting to hire as their fortunes improveor stocks will turn south as the ranks of the unemployed swell. Good thing workers and investors both have become familiar with uncertainty.
In the most simple explanation supply/demand curves for many businesses shifted where sales dropped and therefore earnings dropped. Employers trimmed their payrolls to decrease their expenses and started showing increased earnings therefore the value of the stockmarket rises.
I suspect that in this horrible job market, productivity (among those still working) is way up.
I think the press has really hyped this whole thing to hysteria. There are jobs out there for people who are specializing and have good practical job skills. It’s nasty out there, but not impossible. I fully understand that people have lost their shirts, but with few exceptions it’s mainly the idiots who overextended themselves.
American companies are still way too bloated, while many productive employees have lost their jobs and/or have not been replaced, few if any of the 6 to 7 figure dead weight positions like "Senior vice president for global support services, Director of Communications for the East Coast, Vice President of Mission Related Services, Vice President of Administrative Services, etc, etc have lost theirs.
MBAs take care of their own and unfortunately they will drive the company right out of buisness before they go anywhere.
I own several businesses and I’m in my 20’s. What you call “ageism” is really, in many cases, a reflection of changes in the free market and technology.
I’d love to hire older workers. But the reality is:
2.) Most of my employees and friends are part of what sociologists call the “buster” generation (29 and under). Two of my most brilliant coders, guys who have made me millions of dollars, are gay. I’ve known them forever and they’ve been together since they were 18 years old, so almost 10 years. As a general rule (although this is not always the case), younger people have no problem assimilating into the culture and working with a diverse group of colleagues. We provide them with the best technology, designer coffee, huge discounts to our other family of companies, on-site video games so they can take breaks and play for as long as they want, and flexible work hours. They just want people that get the job done, have fun, and have the opportunity to get rich. People of older generations tend to have a problem with the fact that no one cares these dudes are gay, or if I let one of the secretaries have pink hair. (It’s like they expect us to get offended and when we don’t, get angry - my grandmother thinks I’ve lost my mind but then she wonders why I was able to build a company that made as much profit 4 years out of college as she did in 25 years of 18 hour days. It’s not hard: Hire the best people. Period. If you hire the winners, they are competitive by nature and your company will prosper.) In other words, if I think that an older worker is going to have a problem with my gay employees, or my non-conformist employees, they aren’t getting a callback. For the office to function, the culture has to be enjoyable and no one should feel like they’re going to have to defend who they are when they show up in the morning.
I really don’t think the older generation has any idea how out of touch they are in terms of culture, business, and personal freedom. I mean, we had one CEO of a major vendor stop in a couple of years ago and he couldn’t believe we “wasted our time” playing video games - how on Earth were we successful? (Yet, if we had been spending the same length of time playing golf or drinking at a bar, he wouldn’t have thought twice about it. When I showed him the numbers that the video game industry dwarfs Hollywood in revenue, he was shocked.)
Welcome to FR.
If there was a older technical person who was over 50 who realizes that he needs to re-train himself to use newer technologies ( and then actually does that on his own, going to school to learn them for instance ) who applied to your company and was willing to take a significant pay cut from what he was used to simply to get out of unemployment and be a productive worker again, would you hire him ? ( Let’s say he doesn’t mind working with gays who play video games or girls with green hair ).
I've worked for companies like his. They are the best, bar none. If you are fortunate enough to be with a firm like that, you want to work hard because you don't feel like you're being used. It doesn't feel like a "job". Counter-intuitively, this increases productivity. Such firms do make millions, and the older generation is viewed as stiltedly stodgy and needlessly formal.
WallStreetCapitalist is spot-on, and deserves our admiration. Your lowbrow comment indicates how out of touch you are, and is indicative, I believe, of a broad-based problem in the conservative movement.
How’s that hopey changy thingy working for Obama’s hometown Chicago Democrat voters?
October 16, 2009
By FRANCINE KNOWLES Business Reporter / email@example.com
The states unemployment rate jumped to 10.5 percent in September, the highest level in 26 years, and up from 10 percent in August and from 6.7 percent in September 2008, the Illinois Department of Employment Security said today.
The average over the past three months increased .1 percent to 10.3 percent, the highest level since December 1983.
The states rate continued to exceed the nations 9.8 percent rate.
The state lost 14,200 jobs during the month, the 20th consecutive monthly loss, and the states job total stood at 5,634,700, its lowest level since December 1995, the agency said. Over the year, the state has lost 306,900 jobs.
Trade and transportation shed 5,600 jobs since August and 58,200 over the year. Manufacturing lost 3,500 jobs over the month and 80,700 over the year, the biggest over-the-year drop. The second biggest over they year decline was in professional and business services, which has lost 69,500 jobs, including 2,700 lost over the month. Educational and health services shed 4,400 jobs over the month and 12,300 over the year.
The only sectors to report gains over the month were government, which added 4,600 jobs, other services, which added 2,100 and mining, which added 100.
Whatever, take your gay friends and take a hike.
I think it’s a troll.
I see the exact same thing you describe in the company I work for and companies I contract with.
They would certainly get to the next round, at least. It comes down to timing - who else had applied at the same time and, just as importantly, how much money have we set aside for expansion.
We just signed up a 40 year old to work from her home writing product descriptions for one of our jewelry businesses. She had a background in web design and worked for a jewelry group, making her a perfect match. She was willing to try the system it’s going to be a great deal for everyone involved. In her case, we are paying as an independent contractor and she can do as much or little work as she needs, depending upon her schedule.
“I’ve worked for companies like his.”
I am working for a company similar to this(promotional products niche market).....but primarily, we are all fiscal conservative capitalists which includes gays,pagans,hippies, blue haired employees who want to make money above all else.
We all hate the tax structure in this country and would embrace a fair or flat tax model in a heartbeat....and NO ONE voted for Obama, though we have several libertarians.
Lifestyle choices are confined to the privacy of home.
You are right that people can unite in favor of a principle - like capitalism - and needn't be joined at the hip ideologically.
If conservatives realized this, without compromising core principles, and quit with the blunt, unsophisticated, and ham-handed approaches that give rise to the unflattering stereotypes that plaster us as a group - we might just win some friends and support.
The weak dollar makes US stocks a relative bargain.
I learned another useful term recently: "M&M diversity." Meaning, different colors outside, same content (ideology) inside.
I'm just itching to see that label engraved into a millstone and hung around the neck of all these corporate diversity police who don't understand real people.
Less employees=higher profit
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