Radio Rallies & Reversals

After falling to their lowest in over 50 years, profit margins are already back at levels exceeded only well into previous economic expansions. The V shaped recovery cannot be attributed to sales, as GDP growth has been tepid. Profits owe their V shape in part to employment's L shape. In the US, businesses are producing the same GDP as in 2007, but with 7.5 million fewer jobs. What are companies doing with all the money they are making?

Cash flow is near a record high. Expect more dividend increases and share repurchases next year. As for jobs, it's estimated that payrolls would have to grow by 800,000 per month in the US to match the performance of profits. If small businesses are nervous about overreaching and sensitive about their access to cash, big firms are increasingly focusing their expansion abroad, thanks to cheaper labor; so while employment may be rebounding in North America, labor's share of the economic pie is not.

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