Over the next year you are going to hear a lot of rhetoric about Obama and how no one can beat him. About how weak the Republican field of candidates are, and how they are too weak to make a difference. Obama has already likely lost in 2012. He ju by EJ Moosa
Friday, May 27, 2011
Over the next year you are going to hear a lot of rhetoric about Obama and how no one can beat him. About how weak the Republican field of candidates are, and how they are too weak to make a difference. Obama has likely already lost in 2012. He just doesn't know it yet, and those around him are unwilling to tell him.
I am going to go out on a limb(although it is a rather large solid limb from where I am sitting), and tell you that you have little to worry about( unless John McCain gets back in and wins the nomination). What's in the pot is Obama's Presidential goose.
Here's the rationale:
The economic outlook is weakening. It is weakening rather quickly. This weakening is going to show it's ugly head in the Summer and Fall of 2012. Corporate profit growth, what I believe is the key to employment growth is weakening rather rapidly. When year over year growth rates fall below 6%, private sector employment shrinks. Corporate profits today are only slightly higher than in the third quarter of 2006. With six million fewer private sector employees working today to get to the same level of profits, there is no hope to return those jobs under the current US economic structure. The rate of profit growth needed to return all those folks to work is simply not going to happen.
First quarter corporate profits were released this week. Year over year corporate profit growth slipped from 29.16% at the end of 2010 to 21.47% at the end of first quarter 2011. At this rate, we are six months from signalling a contraction in total private sector employment four quarters down the road. The growth rate was 35.37% at the end of the third quarter of 2010. This was profit growth compared to very weak quarters from the previous years. So the easy comparisons are way over.
There is nothing on the American economic horizon that would allow us to speculate that corporate profits are poised to rebound their growth over the next six months. Companies like Lowe's and Cisco and others are already drastically lowering their outlook for the rest of 2011.
Government debt, more regulations for business, Obama's administration stepping in and stopping the free movement of corporations from one state to another to improve profitability, higher fuel costs, higher food costs, and other items are just some of the reasons I feel that fewer dollars will be flowing to the bottom line, not more.
So this is what is going to turn the heat up on Obama's goose cooking as we speak. Over the next 12 months, we will hear relentlessly about the Obama recovery. We will hear about the jobs growth we have had and the Obama administration will, of course, dismiss any ideas that it is weakening. They will say it is not where they would like it, but it is headed in the right direction. They are very wrong. By surrounding himself with people that haven't a clue on what drives the private sector economy, there is no sense of cause and effect in the White House. So there are no efforts to address the problems we face in the economy. At least not real solutions that affect the real causes.
There is nothing that this administration can do in the short term to turn this around, even if they were to understand and grasp these concepts. It takes at least a year for the changes made to start to be felt within the economy. But when you have a political party such as the democrats that attacks the very item that drives job growth, and I am talking about profits, you know they do not understand. You cannot attack profits and promote job growth at the same time. At least not in the private sector.
I predict that just at the final stages of the Presidential Election cycle kick off, the often touted Obama Recovery will gasp it's last breath. The most important thing is that Obama will own this outright. The days of blaming Bush will be over. Obama may try, but we will have become immune to it's effects. He will have taken too much credit to be successful a second time at the Blame Bush game.
The Obama administration will not be able to offer any steps, plans or promises to improve the situation. If his opponents are smart, they will use snippets of his own speeches against him. The American people, once again facing higher unemployment, will have had enough. Hope for Change will not be enough.
A word or two on the Republican candidates: Those that are dropping out of the race before it has even started likely do not understand the dynamics of profits, employment growth and the economic cycle any better than Obama. So it is good they are going. If they did understand, they would realize that the last person standing in the Republican Party will be odds on favorite by September 2012.
We are simply not going to support a sitting President in office as unemployment rises. The Obama recovery was not strong enough to erase the memories of the last downturn. For most of us, these memories are painful and fresh.
While some will be shocked at the outcome for a President that was so loved by mainstream media, you will have known that Presidential goose has been cooking for months. They will blame racism, hate, greed, and anything else than can throw.
But you and I will know better.
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Posted By: Chatfield
Date: May 28, 2011 10:17:50 AM
"Year over year corporate profit growth slipped from 29.16% at the end of 2010 to 21.47% at the end of first quarter 2011.". Is this enough profit data to accurately measure performance particularly since 2010 we were rebounding from 2009's collapse? What is a healthy profit % after a recession?
Posted By: EJ Moosa
Date: May 28, 2011 10:52:14 AM
Thanks for the question. In some of my earlier columns I talked about what drives private sector hiring. I have studied this data since the Carter Administration.
My research has shown that for private sector employment to grow year over year, that year over year profit growth needs to exceed 6 % four-five quarters earlier.
So, to have more people working in the private sector at the end of 2011, year over year profit growth for 2010 would need to exceed that 6% level. At the end of 2010 that number was 29.16%.
The problem for the Obama administration is that this year over year growth only occurred because of the drastic drop in earnings. For the four quarters ending the first quarter 2009, earnings were down over 18%.
The easy year over year increases are over. From here on, we are comparing year over year performance where none of the quarters were part of a recession.
The Bush economy, which has been so derided over the last two years, actually had year over year profit growth in the double digits from the 4th quarter of 2002 through the fourth quarter of 2006. During that time frame which I feel is correlated to job growth, the private sector added just under 8 million jobs.
Without something in the works to boost profits over the second and third quarters of 2011, we are likely to be below the 6% year over year threshold at the end of the third quarter 2011.
I hope I have answered your question. If not let me know. The healthy percentage for job growth, from my research, is above 6%.