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Taking Stock: Consumers lack buying power to keep corporate profits rising

By Malcolm Berko Modified: September 13, 2013 at 8:55 pm •  Published: September 15, 2013

Dear Mr. Berko: Why is it that Macy's, which used to be my favorite department store, and now Walmart and other retailers are reporting lower earnings and slowdowns in revenues?

The financial data report low interest rates, better employment, that home sales are good and that General Motors, Ford and Chrysler are selling cars and making huge profits. What's wrong here? My next question is: How do I qualify for a health savings account, and how much can I contribute?

KJ, Joliet, Ill.

Dear KJ: Caterpillar, 3M, JPMorgan Chase, General Motors, Ford, Pfizer, Monsanto, General Electric, Rockwell Collins and other blue chips, as well as numerous pale blue chip companies, have increased their profits rather nicely over the past three years. However, that rather nice increase in profits has been made possible by many fewer employees, new hires at much lower salaries, reduced benefits and impressive automation. The average consumer today earns less than he did in 2007.

Those high-paying marketing positions are now low-paying clerical jobs; law firms are downsizing; commercial banks are laying off people in droves; the $50-an-hour jobs (plus benefits) in the steel and auto industries are drying up; carpenters, electricians and plumbers are now happy to work at 70 percent of their 2007-08 wages; newspapers and magazines have downsized significantly, and wages have been frozen or reduced; municipalities have laid off huge numbers of workers and eliminated numerous high-paying supervisory positions; and the investment banking industry has been cutting thousands of highly compensated MBAs every quarter. And most college grads can't find jobs and can't repay their loans.

I've been telling readers for more than a year that consumers don't have the buying power or staying power to keep corporate revenues and profits rising at the healthy pace that Walmart, American Eagle, Dillard's and other retailers have enjoyed over the past three years. Executives at Macy's, Kohl's, Nordstrom and other consumer goods retailers are puzzled over the disconnect between falling floor sales and recent economic indicators that have been pointing to a strong consumer. This disconnect concerns executives at Panasonic, Hewlett-Packard, IBM, Dell, Intel and AOL, where revenues have been disappointing.

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