http://www.nytimes.com/2010/11/24/business/economy/24econ.html?hp
Corporate profits last quarter were the highest in 60 years of history. They were due partially to higher productivity, which means higher output per hour worked, and to investments in faster growing markets overseas. Since output increased with a smaller workforce, corporations have little incentive to add employees, and the unemployment rate is unlikely to fall.
The economy grew at an annual rate of 2.5%. This was higher than forecast but it is not enough to reduce the risk of deflation. Ordinarily, the economy grows more rapidly coming out of a recession.
This is because businesses draw down their inventories during the recession and they must rebuild them during the recovery. Consumption often expands rapidly as well because households have delayed spending during the recession and there is latent demand to be satisfied. However, this is not a typical recession and recovery. Recessions are usually deeper and recovery is slower when a recession is accompanied with a financial crisis and households have high debt levels to draw down.
I guess I want to know if this can be sustained or not. After said latent demand is taken care of and the holiday/Christams shopping season is over, where will we be then? I'm willing to bet retail temp hires are not as high as they were even 10 years ago because of the rise of online shopping.
ReplyDeleteIt would seem that we would need a significant spike in demand to encourage companies to add employees in large numbers. With chronically high unemployment, fewer people have money spend, reducing the odds of that actually happening soon. Its an ugly cycle.
At least profits are up!
The Fed reduced its growth forecast and increased its forecast of unemployment levels for the next 2 years. They have better information on whats happening than anyone.
ReplyDeleteThe 2.5% GDP growth rate just reported is not strong enough to change the unemployment picture. We need 6-7% growth, like we typically get in a recovery to spur employment growth.