Rising profits not translating to paychecks

Happy days are here again — on Wall Street, but not yet on Main Street.

Big companies in Georgia and the rest of the nation banked record or near-record profits last year as they expanded overseas and squeezed out costs at home. Likewise, the Dow Jones Industrial average hit an all-time high last week, suggesting that stock investors believe bigger profits are ahead.

But while many companies have been minting money, most of their customers and employees continue to see paltry job growth and pay raises, economic data and companies’ own filings indicate.

The combined profits of Georgia’s 10 largest public companies hit $24.5 billion last year, up almost 8 percent from 2007, before the Great Recession, according to an analysis of earnings statements by The Atlanta Journal-Constitution.

Georgia companies’ total profits have exceeded the pre-recession peak for the last three years.

And though the 10 firms have been hiring since the depths of the recession, their worldwide employment, 1.1 million last year, is still 0.5 percent less than pre-recession levels. Total employment for the group dropped even though big acquisitions by Delta Air Lines and other companies during the last six years added thousands of workers, at least initially.

Profits per employee at the 10 firms were $22,597 in 2012 collectively, up 8.3 percent from 2007.

Traditionally, economists expect such increases in productivity — more products and profits per worker — to also boost incomes and living standards. But with millions of people still hunting for jobs across the nation, companies face little pressure to boost wages. They’ve also kept hiring in low gear because of the tepid recovery since the recession ended in 2009.

Nationwide, inflation-adjusted hourly wages fell 0.6 percent last year after an equal decline in 2011, the worst trend for American workers since 1995, according to government productivity data released last week.

Georgia has recovered less than half of the 341,000 jobs it lost during the recession. And although its jobless rate is down from its 2009 peak of 10.4 percent, it has been stuck above 8 percent for the last four years. It remained at 8.7 percent in January, the state reported last week.

Demand in the U.S., after falling through the floor during the recession, is growing at a sluggish 2 percent, said Mark Vitner, a senior economist at Wells Fargo. Meanwhile, prices are growing by about the same amount.

Still, Wall Street is bullish because many big companies have learned to thrive in such an environment, said Vitner. The firms grow profits by stealing market share from competitors, growing overseas or cutting costs and becoming more efficient.

“Truly successful companies are doing all of these,” Vitner said.

That seems to be the game plan Coca-Cola and Coca-Cola Enterprises have followed since Coke acquired the bottler’s North American operations in 2010 in a $12.3 billion deal.

While Coca-Cola’s employment has jumped by more than 60,000 jobs since 2007 as it acquired the CCE operations and expanded overseas, CCE’s employment fell just as fast. Meanwhile, the two companies’ combined profits rose 45 percent during the same period, to $9.7 billion.

About 80 percent of Coca-Cola’s sales are overseas, and the soft-drink giant is targeting emerging markets where demand is expected to grow faster than in the U.S., said Jack Russo, an analyst with Edward Jones in St.Louis.

“They just keep doing what they do best, which is growing,” he said.

After five years of severe job cutting and lackluster job growth, University of Georgia economist Jeff Humphreys is beginning to read bullish signs around the state and on Wall Street.

Wall Street’s surge into record territory “is good news for the economy. It should be good news for those looking for jobs,” he said, if only because investors’ growing wealth should fuel consumer spending and economic growth.

Meanwhile, “the housing bust is over,” he added. That’s a “really, really big deal for Georgia,” he said, given the bust’s out-sized impact on metro Atlanta consumers, and the Georgia timber industry’s and carpet manufacturers’ heavy reliance on new home building.

Companies are in the best financial shape in years, and “primed for growth,” he added. However, private-sector growth is being countered by austerity measures and restructuring at almost all levels of government, he added, which is “a big headwind for the economy.”

Bottom line: Humphreys expects job growth in Georgia to remain slow this year, meaning the state won’t replace all the jobs it lost in the recession until 2016.