Profiting From Job Losses

The unemployment rate is now worse than it was at the height of the GFC, but company profits are rising. How do we explain this?

Company profits are rising right now largely because companies are reducing their costs, and that means they're shedding staff or not hiring new staff.

With economic growth sluggish at the moment, the easy way for many companies to lift their profits is to take costs out of their business by sacking workers.

The major cost-cutters are the big miners: after having either halted or curbed spending on new mines, they are now shedding jobs and capitalising on still quite high commodity prices.

There are already signs of that in the profit numbers. For example, the building products company Boral reported a 73 per cent jump in half year profits last week thanks to a surging housing sector.

Rising company profits and record dividend payouts also pleased equity investors last week. The share market rose 3.7 per cent, which was its best performance in nearly two years.