Recovery May Leave Consumers Behind
February 24, 2002 4:01:00 PM ET
news.moneycentral.msn.com
By Ellen Freilich
NEW YORK (Reuters) - The recession the U.S. economy experienced last year was a mild one, thanks to the power of the American pocketbook, which allowed consumers to spend even as business profits collapsed.
But as the economy starts to recover and profits at some businesses improve, American workers and consumers may feel a pinch as corporations try to cut down labor costs.
``At every meeting,'' said a product manager at a West Coast bank, ``my boss tells us, 'Everyone worked hard last year and their efforts were appreciated. But remind your people that the company didn't make money, so make sure their expectations (for salary and bonuses) are where they should be.'''
This relationship between corporate profits and Americans' income and spending power means economic growth in the first year of recovery will probably be more subdued than in the first years after previous recessions, economists said.
Goldman Sachs & Co. economist Jan Hatzius said that means 2002 might look like a mirror image of 2001. Last year's strong wage increases crushed corporate profit margins, but helped consumer spending stay strong. This year, margins will probably recover some of their lost ground, but a slowdown in wage growth will weigh on real incomes and consumer spending.
After-tax income is what drives consumer spending, said Dana Johnson, managing director and head of research at Banc One Capital Markets. |
