Is This The Golden Age of Corporate Profits?

Unemployment still remains high — yet corporate profits are growing steadily, benefiting to some degree from the stagnant economy; with millions out of work, employers feel little pressure to increase wages. Companies would rather make due with fewer employees as productivity gains have enabled them to increase sales without growing their workforces.

The Dow Jones Industrial Average is flirting with a record high, but, as The New York Times reported Monday, the divide between the workers in the United States and the companies that employ them is growing. This inequality serves to explain why stock markets are doing well despite relatively slow economic growth; the U.S. Commerce Department reported last week that for the last quarter of 2012, the nation’s gross domestic product grew only 0.1 percent.

The gulf between workers’ wages and corporate profits have drawn the attention of economists. “So far in this recovery, corporations have captured an unusually high share of the income gains,” Ethan Harris, co-head of global economics at Bank of America Merrill Lynch, told the Times. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

The current economic environment is one that closely approximates a golden age for corporate profits, especially for multinationals with operations in the fast growing economies of China and India. The weak labor market, coupled with the Federal Reserve’s easy money policy, has created a climate that benefits companies far more than it does individual workers. The central bank has kept interest rates exceedingly low, prompting traders to make riskier investments that, in turn, have pushed the Dow beyond 14,000 and close to its record high…