Needed luxuries

 

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The bottom line of making a profit -- all else being a means to that end -- appears to be holding true despite lean times for U.S. companies.

That is to say companies that have laid off thousands of workers have, in reverse fashion, been reminded a worker is the first luxury of business and doing without a few employees means the company is less luxurious, but not necessarily less profitable.

Start with a mom-and-pop operation with the enterprising couple working 12-hours a day for as many consecutive days as it takes. Once the company pays its bills and the living expenses of its owners, it can finally afford a luxury or two. The first luxury is a worker to do some of the heavy lifting.

The New York Times quoted David Kostin, the chief U.S. equity strategist at Goldman Sachs, as saying the new parameters of business -- operating through the downturn -- defined "new levels of profitability."

Surprisingly, "In the downturn, companies managed to maintain higher profit margins than ever before," he said.

That's right: Less revenue and more profit. That's a kind of cold fusion of business dynamics that invariably includes a tighter "squeeze" on the workforce to wrest some gains from the downturn, said Ethan Harris, chief economist at Bank of America Merrill Lynch.

Profit margins have gone up after hitting 5.9 percent in 2009, a recent low. That seems counter-intuitive, counter-everything. It is built into the cultural ego to assume that workers are hired to increase profits -- why else would they be hired? But luxuries don't increase profits.

Workers, that is, increase revenues and total profits, but they decrease profit margins, because companies share profits with workers in the form of pay and benefits.

This is one reason President Barack Obama and frequent critic Peter Morici, an economics professor at the University of Maryland, actually agree on something: the pursuit of electrically powered cars as additions to the economic landscape. With additional jobs tacked on to the economy since the first of the year barely keeping up with new workers joining the workforce, a far quicker solution to unemployment is to expand into entirely new technologies. Conservative, not to say successful, chief executive officers are always squeezing their workers. That's what they do.

It takes, for example, unheard of profits for a company to tell workers to devote 20 percent of their time on the clock to their own projects as a way to boost morale and explore innovation. That's why Google is doing this, as opposed to, say, General Motors. Google is more profitable than GM.

Put almost poetically, Deutsche Bank market analyst Rod Lache said companies whittled themselves down to "a position that's defendable," as if mom and pop had decided to barricade themselves in, taking a last stand against the downturn with pots and pans for helmets and window shades drawn. To do that, a few branch offices had to be sacrificed. Only the core of the business could be defended successfully, which meant everything else had to go.

Frustrating politicians, policymakers and the public, companies flush with cash are reluctant to hire and GM provides an example of why.

GM is certainly not boasting these days it has too much cash sitting in bank accounts, yet the company adds workers when a line of cars looks like it will sell. Profits, in that case, have to defy production costs, which takes excessive demand (not break-even demand) and demand is hard to scare up these days with so many millions out of work.

In international markets Monday, the Nikkei 225 in Japan rose 0.77 percent and the Shanghai composite index added 0.65 percent. The Hang Seng index in Hong Kong rose 0.12 percent and the Sensex in India lost 0.61 percent.

The S&P/ASX 200 in Australia rose 0.62 percent.

In midday trading in Europe, the FTSE 100 in Britain was flat with a drop of 0.01 percent while the DAX 30 in Germany fell 0.38 percent. The CAC 40 in France lost 0.11 percent while the pan-European DJ Stoxx 50 shed 0.43 percent.