Profits are the key to employment. When Obama talks about job creation, he will fail to mention what creates or destroys jobs in the United States: Profit by EJ Moosa
(libertarian)
Tuesday, January 25, 2011
One year ago, I wrote about the role that profits play in the employment equation in the United States.
Tonight, President Obama will continue to insist jobs are his priority. And for at least the next 15 months, he will be able to point out that jobs are returning, and that his strategies have worked, as he heads into the election cycle of 2012.
Unfortunately, he will be taking credit he does not deserve. The truth is that the jobs are returning despite what he has done as President of the United States.
I say this with confidence. As I have written here, and in other places, there is only one indicator you need to see to determine whether or not job creation is in our future.
That indicator is available to anyone with internet access. It requires no manipulation of the number to make it work. It just does. I believe that there are some basic fundamental reasons that it does, but that is not significant at this point. You can find the indicator here on line 17 of the GDP report. Merely add up the last four quarters of corporate profit, and divide it by the four quarters prior. The results will let you accurately predict job growth in 4-5 quarters with relative ease.
Profits. Increasing profits by more than 6% year over year increases employment in the United States 4-5 quarters after those profits are realized.
The first quarter of 2010 saw year over year corporate profits increase by 13.4%., indicating to me that we would see an improving employment picture in the first and second quarters of 2011. The improvements will continue at least through the first quarter of 2012 as corporate profits were up 35.3% year over year through the third quarter of 2010.
In the first quarter of 2007, this indicator fell below the 6% threshold, and five quarters later, year over year employment was falling.
Most economists I read about use GDP as their guide to how things are going in the United States. Yet I see no correlation between GDP and employment.
In fact, GDP continued to rise through the third quarter of 2008, yet the US had already shed over 1.8 million jobs. So GDP does not indicate future job growth at all.
And today, the US GDP is at an all-time high. The third quarter GDP report has the US economy at $14,993.6 trillion, while there are over 6 million fewer people working.
So GDP does not indicate the future of employment, or jobs in any manner. If you feel it does, I challenge you to show how.
What will bother me the most over these coming months and years, as jobs return, is that there will be so many politicians taking credit for these returning jobs. Yet I know they had nothing to do with it. Government cannot create jobs in the private sector that last(yet they can permanently destroy jobs in the private sector).
I know that US businesses, in an effort to maximize their profitability, made adjustments, and then when their profits returned, were able to once again begin expanding their operations.
I also know that if our elected officials understood and embraced this very simple concept, that we would have all the jobs people wanted here in the United States. Because then, our officials would be working to create a better environment for profitability in the United States. This is not what they are doing today, unfortunately. And this idea is something very few would ever be able to embrace. After all, profits have been the target of politicians for centuries.
While we have a good four to five quarters ahead of us for job growth, everything is not better on the horizon.
The improvement between second and third quarters of 2010 corporate profits fell significantly. While profits still had improved, the easy comparisons are over. Corporate profits improved by 1.6%, leaving little room for slippage going forward.
Profits will be the key going forward, just as they have been the key in the past.
Understanding this simple concept, and using it to formulate strategies for America could strengthen our economy for everyone that wants to participate.
To ignore it is to sacrifice millions of Americans to a future of uncertainty.
Profits are the key to unlocking America's potential. Understanding this is essential.
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The views expressed
in this article are those of EJ Moosa only and
do not represent the views of Nolan Chart, LLC or its affiliates.
EJ Moosa is solely responsible for the contents
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