Rising Poverty

http://www.nytimes.com/roomfordebate/2010/09/16/rising-poverty-and-the-social-safety-net?emc=eta1

http://www.nytimes.com/2010/09/17/us/17poverty.html?_r=1&emc=eta1

***************

"It's difficult to find common ground with others when the only person you're focused on is YOURSELF." (John C. Maxwell)

***************

So, the money not being spent on the U.S. economy in the form of capital expenditures from U.S. companies continues to be a drag on job growth. The report on this subject by Fareed Zakaria recently was backed up by Federal Reserve data released this week. The Fed's quarterly Flow of Funds report indicates that corporate liquid assets made up 6.12% of total business assets in the second quarter. That's just barely down from the 6.21% level in the first quarter when companies had the highest share of assets in cash since the early 1960s. And, any corporate CEO will tell you why: the regulatory and tax environment is still not settled.

The slight increase in capital expenditures in the second quarter (reducing the 6.21% number above to 6.12%) reflects spending on software and equipment, not people. Some would look at the prior sentence and say, "... software and equipment instead of people" since many CEOs and top finance staff view such expenditures as synomimous with more output "because" they're not spending on people. Consequently, they improve their "productivity."

All of this makes it possible for companies like Oracle (the world's biggest maker of database software) to report a 20% increase in net profit in the latest quarter. Oracle's results, reported Thursday, come as the company finds itself in the spotlight in the latest Silicon Valley soap opera: this one involving Mark Hurd, the ousted chief of Hewlett-Packard. Oracle has hired Hurd to sharpen its attack on HP in the area of computer servers, an area Oracle picked up with its $7.3 billion purchase earlier this year of Sun Microsystems.

The theatrics over Hurd's appointment as Oracle co-president (is that like co-CEO, only a level lower?) - a move HP has sued to stop (unfortunately, the HP Board was so anxious to get rid of Hurd that they didn't put a clause in his ($35 million?) severance agreement about working for the competition) - have overshadowed the fact that Oracle's core business is thriving because businesses have pumped up their investments in the programs that run their back offices. Oracle is a key company because its software is ubiquitous but largely hidden from the public view. It's used to keep bank transactions humming, airplanes landing on time and retailers shelves stocked with the right amount of merchandise.

While that's nice for Oracle, the providers of "services" in this service economy have a mixed bag of performance that is more reflective of what's really going on. FedEx Corp. indicated Thursday that the global economic recovery remains "uneven." While strength in international shipments is boosting their net income, FedEx is cutting 1,700 jobs in its U.S. freight business to offset losses there. Where do those people go?

Back to rising poverty. The percentage of Americans struggling below the poverty line in 2009 was the highest it has been in 15 years according to the Census Bureau report on Thursday. Four million additional Americans found themselves in poverty in 2009. That total is now 44 million or 1 in 7 residents. The share of residents in poverty climbed to 14.3% in 2009.

For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050. We've attached a second article (in addition to our first which includes an excellent graphic depiction of the combination of real median income in thousands, poverty rate and percentage without health insurance) which addresses what to do about the situation from various points of view. David R. Jones (President and CEO of The Community Service Society of New York) has the realistic view that we need to upgrade the skills of young people trying to enter the labor market - funding should be increased for vocational education that leads to real jobs after school. Essentially, we should concentrate our efforts on young people who are not going on to college. Otherwise, we have the makings of a permanent underclass. We would add to Jones' perspective that colleges need to get serious about working with students on getting them to options in courses that will lead to "employable skills" in profit or non-profit sectors that are growing (health care, for example).

Last, we noted with interest on Friday that Dell will open a second major operations center in China in the western city of Chengdu. This is a natural outgrowth of rising costs in the more developed coastal areas. We're sure China's perspective is supportive since the government is looking for economic growth away from its coasts. Dell, like other foreign PC makers in China, has struggled to increase its market share against Lenovo. Dell expects its new operations center to open in 2011 with manufacturing, sales and service centers which could eventually employ up to 3,000 people.

Dell estimates that it will spend more than $100 billion in the next decade in China on facilities, employment, research and development and purchases from Chinese suppliers. Here, we are tempted to ask why Dell can't spend some of that money in the U.S. - but we won't. Currently Dell accounts for 9% of the 16.6 million PCs shipped in China annually, putting them in second place behind Lenovo which has a 28.7% share (HP has an 8.2% share).

Unemployment, poverty and capital money being spent overseas by U.S. companies. There seems to be a recurring theme here. Getting capital money to be spent here would be a good way to jump start the economy and jobs.





So we are back to the issue of unemployment and poverty in the U.S.