“With the Dow Jones industrial Averageflirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as federal budget cuts take hold.
That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.
With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.
”So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. ”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 result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.
These factors, along with the Federal Reserve’s efforts to keep interest rates ultra-low and encourage investors to put more money into riskier assets, prompted traders to send the Dow past 14,000 to within 75 points of a record high last week.
While buoyant earnings are rewarded by investors and make American companies more competitive globally, they have not translated into additional jobs at home.
Other recent positive economic developments, like a healthier housing sector and growth in orders for machinery and some other durable goods, have also encouraged Wall Street but similarly failed to improve the employment picture. Unemployment, after steadily declining for three years, has been stuck at just below 8 percent since last September…..”
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