On May 18, 2013, Sam Ro writes on Business Insider:
Some have attributed recent profit margin gains to companies squeezing more out of their workers. This would explain why corporate profits have surged to record highs even as wages have stagnated and unemployment rates remain stubbornly high.
Low wage-driven margin gains are unsustainable, warns David Rosenberg.
Suzuki believes it’s a mistake to think that margins will revert to a long-term mean just for the sake of reverting to a mean.
Rather, he argues that high margins reflect a long-term structural change, not a short-term cyclical one. This has long been the position of veteran market strategists David Bianco of Deutsche Bank and Brian Belski of BMO Capital.
So, while it may be the case that low wages are unsustainable, the profit margin story is being driven by much larger long-term forces.
Suzuki expects S&P 500 earnings to grow to $115 per share in 2014, up 6% from this year’s $109 level.
“While we expect global economic growth to accelerate in 2014, growth will continue to be hampered by global fiscal austerity with limited scope for significant incremental monetary easing,” he wrote. “And given how lean corporate cost structures have already been cut, we believe it will be difficult for corporations to generate further earnings growth through further margin expansion. As such, we expect the S&P 500 to maintain the current growth trajectory of 5-7 percent annually.”
Certainly one of the reasons for corporate profit margins to be increasing during this period of high unemployment and underemployment is that companies are, in fact, squeezing their employees to do more of the work that previously had been done by others, now no longer employed by the companies. This has been an effort to significantly streamline and reduce operational costs to boost profitability.
But long-term, tectonic shifts in the technologies of production that structurally shift the input factors comprising the production of products and services will continue to destroy job opportunities and devalue the worth of labor as the non-human factor increasingly replaces the need for labor. Without a means for people to gain income through ownership in the corporate assets of FUTURE economic growth, they will not have the income to support the purchase of the output capability to produce products and services needed and wanted by society. As further capital ownership occurs, the 1 percent, who are not the people who do the overwhelming consuming, will not be able to sustain economic growth because there will be fewer and fewer “customers with money.”. The result is the consumer populous will not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption that is the structural problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
