It's All Bad News
. . . Except for the economic reality on the ground.
11:00 PM, Dec 5, 2005 • By IRWIN M. STELZER
The situation, then, seems to be one in which input prices are rising, but the prices consumers pay for the goods and services produced by those businesses are not, or at least not as rapidly. That suggests that we are likely to see an erosion in profit margins. Indeed, even mightily efficient Wal-Mart has had to accept slightly lower margins to meet competition in this pre-Christmas shopping season. And Microsoft, desperate to buy its way into the nation's living rooms, has had to take a loss of $126 on each of its $399 Xbox 360s, according to researchers at iSuppli, a "market intelligence" firm.
But before worrying about the health of American businesses consider this: Profit margins are now at sufficiently handsome levels to give businesses room to tighten their belts without unduly constricting their ability to keep shareholders happy with handsome payouts (dividends and share buybacks will come to $500 billion this year, up 30 percent on last year), while at the same time increasing investment in new hi-tech equipment by 25 percent during the past year.
So the economy continues to move ahead, thanks in part to the Bush tax cuts, but that doesn't seem to be doing much for the president's standing with the voters. Over 60 percent of Americans say they are dissatisfied with the way things are going, and 58 percent say they expect economic conditions to worsen. For Bush, there is no balm in Washington.
Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.