Corporate Earnings Soar Amidst a Dismal Job Market
Companies have performed much better than expected during this second-quarter earnings season. Several blue-chip companies including Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO) and McDonalds (NYSE:MCD) are on track to set new records for operating earnings.
– Apple Inc. (NASDAQ:AAPL) achieved an 82 percent jump in revenue to 47.31 billion.
– Coca-Cola Co. (NYSE:KO) developed its brand in emerging markets, thereby trippling its income to $5.77 billion.
– Mcdonalds (NYSE:MCD) increased revenue by 16 percent, elevating net income to $1.4 billion.
Seventy-three percent of companies in the Standard & Poor’s 500 (NYSE:SPY) have beaten the expectations of Wall Street. Analysts forecast that earning per share will continue to improve over the rest of the year.
The S&P 500 (NYSE:SPY) has been holding ground lately. Investors clearly believe the corporate sector’s performance provides reason for optimism amidst the tumult of the debt standoff in Washington and the financial crisis in Europe.
However, in spite of the boom in second-quarter corporate profits, the labor market remains dismal. Two years after economists announced that the recession had ended, unemployment remains at 9.2 percent. For the first 18 months after the recession ended, wages and salaries accounted for merely 1 percent of economic growth, where as corporate profits accounted for a staggering 88 percent.
Unfortunately for US workers, many of the factors driving strong corporate profits are also detracting from the labor market. For starters, Bloomberg reports U.S. corporations are expanding overseas more so than at home. For many U.S.-based multinational corporations, sales abroad trump those in the domestic market and outsourcing remains prevalent. Stateside, companies derive considerable profits from labor efficiencies – finding ways to raise productivity without taking on extra workers. Finally, the uncertainly of government policies has given corporations ample reason to spend prudently, inhibiting the creation of new jobs.
Don’t Miss: Are Stocks the New GOLD-en Investment?
While the corporate sector may have left the recession far behind, millions of unemployed and underpaid Americans must still deal with its implications. A full-fledged recovery won’t be possible until this latter component is handled and consumer spending rebounds. But don’t tell that to stock investors.