This piece in the New York Times touches on a topic that is nothing new for FMMF readers, but apparently a revelation for readers of the Times judging from its status as the 2nd most popular story.  (I only wish comments had not been disabled because I would have love to seen the reactions)  While the NYT story focuses on Harley Davidson, which ironically I just discussed last Thursday....

As I wrote the past 3-4 weeks I expected U.S. multinationals aka the master of the universe to do very well, and they are doing so. People truly underestimate how their top cost (labor) is ever decreasing as U.S. states and indeed nations desperate to employ their people are throwing ever better tax incentives to keep or attract these large corporations; these truly have been the biggest beneficiaries of globalization. While reading through the Harley Davidson report I saw how the company is baiting their labor in one state (Wisconsin) versus the threat of moving the work to another - I've read hundreds upon hundreds of these stories the past 10+ years... and those are simply the companies who bother to keep U.S. employees rather than just go offshore. Most of our states are running huge deficits now but still offering tax incentives to attract or keep corporations in house - that says it all. If you are a large employer, the world is your oyster.

.... this applies to countless of our largest corporations.  As I read over the Ford report last Friday (a company I am very familiar with just due to local proximity) I was reminded that the company has cut half its workforce.   Most of these cuts are far less news worthy... its 2000 cuts here, 3500 there.  In fact, United Technologies (UTX) one of the country's largest industrials announced another 1500 job cuts on top of the 900 already chopped in 2010 (2400 total).  That might not sound like a lot but 2400 is akin to 400-500 small businesses employing 5-6 people. 

  • The industrial conglomerate last week posted almost a 14% increase in second-quarter net income, citing a relentless focus on cost. It cut deeply into its payroll during the worst of the recession, cutting 11,600 jobs last year.
  • .... will cut another 1,500 this year and next on top of the 900 positions it has already eliminated in 2010.
  • Ari Bousbib, president of commercial companies at United Technologies, told investor analysts last month that the company has cut costs at its Fire and Security segment by moving manufacturing to low-cost sites.

If you do a lot of reading like I do, you can find 1-2 stories like this every week. When you add it all up, it is no wonder the recovery in jobs is putrid, and shall remain so... and why the private sector has created no net job growth in the past decade; it has all been in government, or government supported industries (healthcare, education)

[this data is about a year old, I am sure it has actually gotten worse since]

The interesting question for me is what societal pressures will arise, if any.  In theory as profits boom, corporations should hire - but why hire here, even if domiciled here?  There is no government strategy as in other countries.   In fact the word's government and strategy don't even fit together in the US of A.  And even if there is hiring in the U.S. the normal upward wage pressures do not exist as there is a huge global labor pool competing for a finite amount of jobs, so there is no power by labor. If you won't take the job at X price there are another 6 Americans who will; not to mention 25 others in other countries.  Just another 'stress' on the system even as the 'recovery' carries on.

But can we blame the corporation*?  No, not really - a corporation's job is only to make money, not provide a societal benefit (in the U.S......other countries have different viewpoints i.e. Germany)  Remember, in the American utopia no one works in a corporation except for the C-level executive.  In a perfect world all jobs (except C-level execs) would be automated and if political pressure arises, said C-level exec threatens to move his remaining people robots overseas.  I exaggerate but you get where we are headed.

*ironically, corporation's are humans in the US of A, as determined by the Supreme Court.

The counter argument to utopia is at some point there won't be enough Americans to pay for the products said corporations produce, hence this cannot continue! ... to which I say we're already reaching that point.  See record amount of American's income derived from government transfer payments (now approaching 1 in 5 dollars).  As long as the government can print, borrow, beg and hand out to it's people - it can continue for a long time.  Plus the Asian populace (who has our money... and old jobs) can now spend and slowly take American consumers place.   We're all going to global arbitrage baby. 

As speculators we only clap like seals as the system is working for us.  Well, as long as we have jobs that create enough income to be able to invest in the masters of the universe!


On to the NYT piece:

  • .... despite that drought, Harley’s profits are rising — soaring, in fact. Last week, Harley reported a $71 million profit in the second quarter, more than triple what it earned a year ago.  This seeming contradiction — falling sales and rising profits — is one reason the mood on Wall Street is so much more buoyant than in households, where pessimism runs deep and joblessness shows few signs of easing.
  • Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production. Harley, for example, has announced plans to cut 1,400 to 1,600 more jobs by the end of next year. That is on top of 2,000 job cuts last year — more than a fifth of its work force.
  • Because of high unemployment, management is using its leverage to get more hours out of workers,” (in English, these are the productivity measures we see every month, and why they are flying) said Robert C. Pozen, a senior lecturer at Harvard Business School and the former president of Fidelity Investments. “What’s worrisome is that American business has gotten used to being a lot leaner, and it could take a while before they start hiring again.”
  • And some of those businesses, including Harley-Davidson, are preparing for a future where they can prosper even if sales do not recover. Harley’s goal is to permanently be in a position to generate strong profits on a lower revenue base.  (same story with the automakers - see Ford now able to prosper at 11-12M annual auto sales, rather than 16M+ seens just a few years ago)