Corporate balance sheets, by almost any standard, couldn't be in much better shape than they are right now. If anything, you could make the case that corporate balance sheets aren't leveraged enough. There is too much cash on the balance sheet, there is not enough debt. It is hard to get a recession when corporate balance sheets are this clean. No. 2, employment is generally a lagging indicator, but the employment situation is so good. The unemployment rate is 4½%. When I got out of college, full employment was considered 5½% to 6%. It is hard to get a recession when both corporate and consumer balance sheets are as strong as they are and when people are employed.
These are both very solid points. According to the Federal Reserve's Flow of Funds Report, nonfarm, nonfinancial corporate business has a very clean balance sheet. Assets are over twice the amount of liabilities and there is plenty of cash on the books. This is one of the main reasons for the large amount of corporate stock buy-backs in the the market right now. In addition, corporations are the only economic sector actually saving any money right now.
As for employment, I'm a bit more sanguine. Two months ago, construction shed 63,000 jobs. Most of these were replaced last month, but I have to wonder how often we will see this type of pattern. In addition, last months employment report showed a net loss of service sector jobs. This is an economic area that has provided strong growth for the duration of this expansion.
However, my gripes with employment are two nicks in the picture. We have yet to see a sustained loss of jobs. Instead, we have seen nicks and cuts in the overall landscape.
2 comments:
We did not see a net loss of service sector jobs last month. They were up 137K. To get a net loss of service sector jobs would require a serious recession.
What we did see was a loss of 7KProfessional and Business service jobs with accounting aand bboking keeping sheddng 4.9K and temp help services dropping 12.3K
Having a lot of cash does you no good if nobody's buying. Arguably the big problem in the economy is what they are using to justify that the economy is solid, that corporations are flush with cash. They are, true, but their customers are not.
Imagine for a moment a company with an abandoned factory that they have piled to the rafters with hundred dollar bills. Is that good for the economy? I mean yeah it would look good on a balance sheet, but if they aren't employing people and they aren't making anything of value, who cares?
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