For Big Companies, Life Is Good

This piece in the WSJ is further support and evidence of the US productivity theme we have been highlighting for much of the past year.  Although the story's focus in on large corporations, companies of all shapes and sizes are focused on their bottom line and one way that have recovered from the great recession and pushed the ball further down the field is through increases in productivity.


The repercussions of all these productivity gains can be seen in the labor markets which without the right job skills will leave a person in the dust of this recovery.  See [March 23, 2012 US Manufacturing Sees Shortage of Skilled Factory Workers]


From the WSJ see my comments in blue

• An analysis by The Wall Street Journal of corporate financial reports finds that cumulative sales, profits and employment last year among members of the Standard & Poor's 500-stock index exceeded the totals of 2007, before the recession and financial crisis.
• Deep cost cutting during the downturn and caution during the recovery put the companies on firmer financial footing, helping them to outperform the rest of the economy and gather a greater share of the nation's income. The rebound is reflected in the stock market, with the Dow Jones Industrial Average at a four-year high.
• Overall, though, the Journal found that S&P 500 companies have become more efficient—and more productive. In 2007, the companies generated an average of $378,000 in revenue for every employee on their payrolls. Last year, that figure rose to $420,000.
• But hiring? That's another matter. Chief Executive Bill Sullivan says he remains "very, very cautious" about hiring while the recession's scars are fresh. "That's a lesson current leaders of industry will not forget," he says.
• The analysis also found a rebound in capital spending, that is, spending on new plants and equipment. Agilent, for example, boosted capital spending more than 50% last year, to $188 million from $121 million.  Spending on new equipment usually leads to increased productivity using machines rather than labor.  It creates a new demand for skilled labor and eliminates that demand for unskilled labor
• Analysts say the recovery is favoring big companies, like those in the Journal's analysis. Many smaller companies are struggling to stay competitive or to obtain financing.  The perception is that lending is occurring at the larger companies but smaller companies have their opportunities closed to their loan needs.  Large corporations with healthy balance sheets have the ability to take on additional debt or refinance at historical low interest rates
• Many companies continue to struggle. Revenue at home builders is less than half the peak levels from the last decade. Medical-device maker Boston Scientific Corp has shed more than 3,000 jobs since 2007, but its revenue continues to decline and the company posted losses in four of the past five years.
• Foreign corporations also are looking at the U.S., pushing American companies to be more nimble globally. When Chief Executive Paul Bisaro arrived at generic-drug maker Watson Pharmaceuticals Inc in 2007, virtually all of its manufacturing was in the U.S. Mr. Bisaro bought a U.K. drug maker, closed factories in North America and moved half of Watson's manufacturing to India, in part to be closer to non-U.S. customers.
• Such efficiency moves are essential for companies. But economists warn that improved efficiency and continued executive caution are slowing the recovery.  "What's best for an individual firm may not be best for the overall economy," says Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego.