Issue: 397
Sent: 09-06-2010 09:50:27
In this issue:

Getting Companies to EmployA How To Book Of Self Managed Super FundsEmail Marketing WorkshopsEnduring Powers of Attorney & SMSFsEmail Marketing Business Opportunity - Helen Bairstow
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Getting Companies to Employ

Click here to buy - A How To Book of SMSF's by Tony Negline
John Robertson

The job of companies is to increase profits not expand employment. This partly explains the delay in U.S. employment growth which is unnerving investors in the USA.

The weakness in U.S. employment growth is one of four critical issues with the capacity to derail a global recovery and cause havoc in equity markets. These are the four issues which we have been touching on in various ways in the weekly ATC email.

The 3% fall in U.S. equity markets last Friday after a disappointing employment report comes after a record breaking recovery in U.S. corporate profitability. The two charts at show:

Four tendencies are evident over the 20 years spanned by these two charts.

The source of profitability does not necessarily matter for equity markets. As time goes by, however, companies must move from productivity based profit growth to profit that comes from a sustainable increase in demand. Higher demand will depend on higher employment and income growth which is linked back to business confidence and profitability.

Friday's severe market reaction to the numbers from the Bureau of Labor Statistics reflects anxiety about this connection being made. The extreme reaction was aggravated by the extraordinary expectations that had arisen about the May payroll data. On Wednesday, President Obama himself broke the long-established rule that politicians should never speculate about upcoming economic statistics. His explicit endorsement of some already overly bullish forecasts by market commentators cemented how the market would react if the statistics came in short.

Given the way business makes decisions, restoring employment early in a cyclical profit recovery was always going to be highly improbable. On this occasion, given the surrounding circumstances, business was likely to seek even more certainty than usual about the sustainability of its profit base before it commenced to hire again.

Patience might be tested but the usual and all important sequence of productivity based profits coming as a prelude to strengthening employment growth does seem to have been put in place. On that score, at least, we can take some comfort.

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