Put yourself in the shoes of a chief executive of a large corporation.
You know the economy isn’t doing well, yet the stock market keeps raising the price of your company’s shares. Because of the nature of your job, a lot of your pay isn’t in cash; it’s given to you in stock and options to buy more shares.
And no matter how rich you are or high-minded you might want to be, you are human. And humans are innately greedy.
So, you don’t want that stock price to decline.
Oh yeah, you’ll probably also say to yourself that you want to keep stock prices high because you have other shareholders to think about. And that’s true.
But excuse me for being a skeptic on the subject of human nature: People — even super-rich CEOs — mainly look out for themselves.
This isn’t a rising-tide kind of economy — growing so quickly that it floats all boats and helps even the worst companies’ profits. No, the economy today is barely growing, and budget cuts in Washington will probably take care of any expansion that there is.
That’s why the chief executive — in whose shoes you now stand — is being very frugal about spending money. And the best way to do that is by not hiring more workers and letting go of some that you already have.
Tomorrow we will see what kind of job growth the economy had in February. The experts are expecting 155,000 new jobs, which is what they always seem to anticipate lately.
That level of new job growth stinks. Excuse my bluntness, but other publications have been cheering that sort of growth as “consistent” — a euphemism when there is nothing else good to say.
Adding 150,000 jobs each month isn’t even enough to absorb people who are trying to get into the workplace for the first time, much less help laid-off workers find positions.
America is still some 6 million jobs short of the total it had at the peak in 2007. If we had normal post-recession growth of 400,000 to 500,000 jobs a month, then you could cheer.
Let me get back to the typical chief executive I conjured up in the first paragraph of this column.
He didn’t miss the fact that the Dow Jones industrial average rose this week to its highest levels ever. It took six years to get there, but he’s still happy that his company’s stock is part of the celebration.
And he certainly doesn’t want his company to be one of the party poopers. So he isn’t going to hire workers and raise his costs until his business starts to improve.
When will that happen? With increasing health-care costs under ObamaCare this year, the size of the US budget deficit and all the chaos this is creating in Washington, that’s anyone’s guess.
But here are some real numbers that our imaginary executive is looking at when he’s making decisions about hiring:
According to Thomson Reuters, the 500 corporations that make up the Standard & Poor’s index had 4 percent better earnings in 2012 than they did the year before. The long-term average for annual profit increases is 9 percent.
Revenues, or sales, did even worse in 2012 — up just 1.8 percent compared with a long-term average of 7 percent.
With revenues rising so slowly, executives were only able to maintain their 4 percent profit gains through spending cuts and payroll stagnation. There is just no other way to do it.
Wall Street analysts only expect a 1.5 percent rise in profits in the first quarter of this year. And revenues are projected to be just 0.8 percent higher.
Analysts do expect earnings to be up 9.3 percent for the entirety of 2013.
However, revenues are anticipated to be only 3.4 percent higher.
Even if those numbers turn out to be accurate — and don’t bet on it, because you can predict this year better with a Ouija board — corporate executives can only achieve profit growth that’s twice as large as revenue expansion by keeping costs down.
The point is, what the stock market is doing these days isn’t going to help the job market.
In fact, it’s going to make the people who make hiring decisions more careful.
There’s a second point that I’d like to make: Wall Street is again irrationally exuberant. You’ll have to decide if you are getting to the party when everyone else is already too drunk to think straight.
***
This keeps coming up, and it is annoying me.
Discussing sequester cuts, papers keep spouting the idea that Social Security benefits can somehow be cut as part of spending reductions.
Social Security is separate from the federal budget. It has its own “trust fund,” which is a misnomer because there is no real cash in the fund, and there’s very little trust when it comes to the system.
But the process works like this: You and I pay into the “trust fund,” but the cash doesn’t sit idle. The Treasury takes the money and replaces it with government bonds. In essence, Social Security buys the bonds from the government, although it doesn’t seem to have much to say when it comes to the purchases.
Changes may someday be made in Social Security eligibility, which will allow the system to go broke slower than it would otherwise. But the money in the trust fund and the eligibility requirement are of no use in the current sequester talks.