Profits Up, But is the Economy Better Off?
October 14, 2009 by Miranda Marquit
Filed under Finance
As earnings season continues, questions about the economy naturally arise. So far, third quarter earnings have been quite encouraging. And today, the good news continued. JP Morgan reported spectacular third quarter earnings, and that is providing hope that the rest of the financial sector will follow suit. The news has prompted the U.S. stock market to 
head quite a bit higher, fueling hopes that the Dow will hit 10,000 sometime before the week ends.
But is all of this earnings goodness actually indicative of a better economy? The answer might be no. This is because part of the reason that profits are up comes from cost cutting measures. Additionally, some sectors have been receiving help from the government’s economic stimulus efforts. What happens when stimulus runs its course, and that government help is no longer there to buoy companies up? And, of course, the issue of cost cuts is another problem.
One of the biggest ways for companies to cut costs is to lay people off. Job loss has a way of affecting the economy — even if profits are on the rise. Unemployed people have a hard time spending money to actually boost the bottom line through providing cash inflows. In the end, while a company may see profits through cutting costs, there is only so much that can be done before it becomes necessary to find a way to boost incoming cash.
Image source: Beyond silence via Wikimedia Commons
Yes and no. The fear has been removed from the system at the moment, but we continue to artificially prop up our standard of living with borrowed money. The government deficits forecast as far as the eye can see are truly mind boggling, and ultimately destructive to the economy. Someone in government has to have the courage to stop the spending festival for our own good.