Fun_People Archive
12 May
Economics 101

Date: Fri, 12 May 95 12:42:34 PDT
From: Peter Langston <psl>
To: Fun_People
Subject: Economics 101

Forwarded-by: "pardo@cs.washington.edu" <pardo@cs.washington.edu>
[Another RRE forward, subs to `rre-request@weber.ucsd.edu'.]
From: Phil Agre <pagre@weber.ucsd.edu>

[Here are three excerpts from this week's papers, two on the economy
 from the Wall Street Journal ...  I don't make this stuff up, folks.]

During the 1990-91 recession, when layoffs were announced almost
every day, workers around the nation were angry and anxious.  Their
employers talked about a tough new world in which global competition
and technological change required constant leanness, but most
employees assumed that the layoffs would stop when the good times
returned.

They were wrong.

While corporate profits were surging to record levels last year,
the number of job cuts approached those seen at the height of the
recession.  Corporate profits rose 11% in 1994, after a 13% rise
in 1993, according to DRI/McGraw Hill, a Lexington, Mass., economic
consultant.  Meanwhile, corporate America cut 516,069 jobs in 1994,
according to outplacement firm Challenger, Gray & Christmas in
Chicago.  That is far more than in the recession year of 1990, when
316,047 jobs were eliminated, and close to the 1991 total of 555,292
jobs.

(Matt Murray, Amid record profits, companies continue to lay off
employees, Wall Street Journal, 4 May 1995, pages A1, A5.)


Once upon a time -- say, the year before last -- a company making
a 20% return on equity was among the elite.  A Wal-Mart Stores or a
Coca-Cola could obtain the mark, but precious few others.

Now, it seems, the club is open to all.  In the first quarter, the
average ROE of the Standard & Poor's 500 companies hit 20.12%.  This
figure (hot off the calculator from Salomon Brothers) represents
the highest level of corporate profitability in the postwar era, and
probably since the latter stages of the Bronze Age.

...

According to Jack Ciesielski, who writes the Analyst's Accounting
Observer in Baltimore, the ROE signal is "muddy," or inexact --
but it has always been muddy.  It might not measure true corporate
profitability.  It does suggest that life in corporate America is
about as good as it can get.

(Roger Lowenstein, Intrinsic Value: The "20% Club" no longer is
exclusive, Wall Street Journal, 4 May 1995, page C1.)

© 1995 Peter Langston