The US economy has weakened further in 2010, with 2Q US real GDP growth of only 1.6%, with very high unemployment and underemployment, with the housing crisis getting even worse, and with the substantial US government debt increasing even more markedly.
So what has been going on with the Big US Corps in 2010? Well, the Dow and the S&P 500 index have both exploded upwardly since their lows in the first half of 2009. As any stock market guru will tell you, stock prices are driven by earnings, both past earnings and expected future earnings. Let me take a closer look at these very recent past earnings of Big US Corps.
Well, the 30 Dow Industrials in total generated core Worldwide Pretax Income of $206 bil for the first half of 2010, an increase of 40% from the $147 bil earned in the first half of 2009. Productivity Cost Savings were the principal driver of these massive earnings increases, as Total Worldwide Revenues of these Dow Industrials for the first half of 2010 increased by a much lower 11%.
As you can see below, more than half of these Dow 30 Industrials generated core Pretax Profits in the first half of 2010 that were more than $1 bil higher than that experienced in the first half of 2009, with Big Oil leading the list:
………………………....First…….First
………………………....Half……..Half
………………………....2010……2009…Increase..Increase
…………………..........Profit…..Profit…Amount…….%
…………………………...(in billions of dollars)
1 Chevron…………....16.4……..6.5………9.9…....152%
2 Exxon Mobil………24.8……15.4………9.4……...61%
3 Intel…………………..7.6……..0.6………7.0…...1218%
4 Pfizer………………..14.3……..9.7………4.6……...46%
5 JP Morgan Chase..11.6……..7.1………4.5……...63%
6 Merck………………...7.0……..3.7………3.3……...87%
7 Microsoft…………..11.4……..8.2………3.2……...39%
8 DuPont……………....3.2……..1.2……….2.0….....158%
9 American Express..2.8……..1.0……...1.8….....196%
10 AT&T……………....11.7……..9.9……...1.8……...18%
11 Cisco Systems…...4.8……..3.2……….1.6……...50%
12 JNJ………………....10.5…….8.9……….1.6……...18%
13 GE…………………....7.1……..5.7……….1.4……...24%
14 Alcoa………………..0.1……(1.2)………1.3……..112%
15 Caterpillar…………1.4……..0.2……….1.2……..649%
16 Disney………………3.9……..2.7……….1.2……....46%
17 3M…………………..3.0……..1.9………..1.1……....55%
All 30 Dow Cos....206.1….146.9……...59.2……..40%
And when I expand my research here to also include 132 of the largest non-Dow Industrial companies, I get very similar strong earnings and Productivity Cost Savings results. For these 132 large non-Dow companies, core Worldwide Pretax Income for the first half of 2010 was $228 bil, up 47%, whereas Worldwide Revenues were up a much lower 15%.
There were 22 of these 132 non-Dow Industrial companies generating core Pretax Profits in the first half of 2010 that were more than $1 bil higher than that experienced in the first half of 2009, with 6 Big Oil companies among the top 15 of these 22:
………………………….......First…….First
………………………….......Half……..Half
………………………….......2010……2009….Increase..Increase.
…………………................Profit…..Profit…Amount……..%
………………………...........(in billions of dollars)
1 Berkshire Hathaway….8.0……..2.2……….5.8……...257%
2 Morgan Stanley………..4.2…….(1.2)……….5.4…......445%
3 Ford…………………........5.0…….0.6………..4.4…......760%
4 ConocoPhillips………...7.3……..3.9………..3.4…….....86%
5 Apple…………….…........8.3……..5.1………..3.2…….....64%
6 Prudential Financial….2.5……..0.0……….2.5……....
7 Andarko Petroleum…..1.3…….(0.9)………2.2……...241%
8 Dow Chemical……........1.4…….(0.7)………2.1….......311%
9 Capital One Financial...2.1……..0.2…….....1.9….....1092%
10 Occidental Petroleum3.6….....1.7………..1.9……...113%
11 FedEx………………........1.1…….(0.7)………1.8……...247%
12 Texas Instruments......2.1……..0.4……….1.7……...456%
13 Devon Energy……….....2.2……..0.5……….1.7……...304%
14 Apache…………….........2.6……..1.2………..1.4……...126%
15 Hess………………..........1.7……...0.3……….1.4……....500%
16 Corning……………........1.9……..0.6………..1.3……....235%
17 Freeport McMoran…..3.2……..1.9………..1.3…….....68%
18 Google…………….........4.9……..3.7………..1.2…….....32%
19 PNC Financial……......2.0……..0.9………..1.1……....128%
20 Qualcomm………........1.9……..0.9………..1.0……....119%
21 Applied Materials…...0.6…….(0.4)……….1.0……....224%
22 Johnson Controls……0.8…….(0.2)……….1.0……....572%
All 132 non-Dow Cos.228.4…...155.0……...73.4………47%
I think that primarily six subgroups of Big Corps have played major roles in creating the 2000s Lost Decade, the financial aftershocks of which are the main reason for the country’s present horrible jobless recovery, with sky high unemployment and underemployment, very modest real GDP growth, high US government debt level, and the awful housing crisis.
The six are:
…Big Multinational Corps
…Big Oil Corps
…Big Financial Corps
…Big Health Insurance Corps
…Big Pharma Corps
…Big Hospital, both For-Profit Corps and Non-Profits
Let me isolate how each of these six subgroups of Big Corps have done in the first half of 2010 by further analyzing the operating performance of the 162 large companies (30 Dow Industrials and 132 non-Dow companies) I have studied above, as well as adding a few other health care industry companies.
Big Multinational Corps
A large portion of the 162 companies are big multinational corps. In the aggregate, the core Pretax Earnings in the first half of 2010 of these 162 corps totaled $434.5 bil, up an incredibly high 44% from the $301.9 bil earned in the first half of 2009.
A surprising finding here for me is that this $434.5 bil of total core Pretax Earnings in the first half of 2010 were just barely short of the all-time peak total first half earnings of these same 162 companies experienced in the first half of 2008 of $436.3 bil. And these first half 2010 earnings of $434.5 bil slightly surpassed the $433.2 bil of comparable earnings experienced in the first half 2007. I have to wonder what percentage of US individuals and purely domestic US businesses, both large and small, were doing just as well financially in the first half of 2010 and they were doing in the first half of 2008 and 2007? My hunch is less than 10%. Clearly, all boats haven't risen, it's just been the Big Corp Boats.
Clearly, the earnings of the Big Multinational Corps have bounced back in 2010. And since Total Revenues in the first half of 2010 of these 162 companies are up only 13%, whereas Total Earnings increased by a much more robust 44%, Productivity Cost Savings have played a major role, not just the layoffs of US employees and the wage and employee benefit trade-down replacements of US employees, but also the movement of jobs overseas, due to lower income taxes, lower wages, and lower employee benefit costs. And the very robust earnings and revenue growth here are mostly overseas.
Big Oil Corps
There were 15 Big Oil Corps included in these 162 large corps. The total core Pretax Earnings of these 15 Oil companies for the first half of 2010 were $68.7 bil, up a massive 86% from the comparable earnings in the first half of 2009. And these nosebleed increased earnings occurred in a period marred in part by the Gulf Oil spill. With its awesome economic power and government influence, it seems that nothing can stop this Big Oil industry from generating windfall profits.
Big Financial Corps
There were 25 Big Financial Corps included in these 162 large corps. The total Pretax Earnings of these 25 Financial companies in the first half of 2010 were $70.3 bil, up a surprisingly very strong 44% from the comparable earnings in the first half of 2009. The only ones suffering in the Big Financials arena are its homeowner mortgage customers, its credit card customers, its small business customers, and US taxpayers from the US government bailouts of Fannie Mae, Freddie Mac and AIG.
Big Health Insurance Corps
The Big 4 of Health Insurance are United Health Group, Wellpoint, Aetna and Humana. The total pretax earnings of these 4 companies in the first half of 2010 were $8.7 bil, up a strong 29% from the first half of 2009. The total earnings of these four stalwarts of the Health Insurance industry has now significantly surpassed its previous peak earnings experienced in the first half of 2007 of $7.8 bil. The only ones suffering in the health insurance industry are the customers of health insurance, both businesses and individuals, paying sky high premiums in an industry continuing to generate windfall profits. And once the new health care legislation totally kicks in, the health insurance industry will do even substantially better. Just like Big Oil, it seems that nothing can stop this health insurance industry.
Big Pharma Corps
The total core Pretax Earnings for these 12 Big Pharma Corps, included in these above 162 Big Corps, for the first half of 2010 were $48.9 bil, precisely matching the 29% earnings growth over the first half 2009 also experienced by the Big Health Insurance industry. The total core earnings of the Big Pharma industry has now significantly surpassed by 23% its previous peak earnings in the first half of 2008 of $39.6 bil. The only ones suffering in this Big Pharma industry are the customers of Big Pharma, including individuals and the US Government. And once the new health care legislation totally kicks in, just like the Big Health Insurance industry, Big Pharma will also do even substantially better. And just like Big Oil and Big Health Insurance, it seems that nothing can stop this Big Pharma industry. For all three industries, it’s all about effective lobbying.
Big Hospital
There are six large for-profit hospital organizations which file with the SEC:
…HCA
…Community Health Systems
…Universal Health Services
…Tenet Healthcare
…Health Management Associates
…Lifepoint Hospitals
This publicly-held Big Hospital industry has had back-to-back superb years. In the first half of 2010, the total Pretax Earnings of this publicly-held Big Hospital industry were $2.1 bil, up 9% from the first half of 2009, which had an increase of a massive 74% over the first half earnings of 2008. The only ones suffering in the total Big Hospital industry, which also includes the many Non-profit Big Hospital organizations, are the hospital patients and the US Government. And once the new health care legislation totally kicks in, just like the Big Health Insurance and the Big Pharma industries, Big Hospital will also do even substantially better. Just like Big Oil, Big Health Insurance, and Big Pharma, it seems that nothing can stop this Big Hospital industry. For all four industries, it’s all about effective lobbying.
=============================================
In summing up, it’s just not right for all of these six subgroups of Big Corps to be rocking in the first half of 2010 when both so many US citizens and so many US small businesses are in such desperate straits financially. It’s all about Big Corps obscene power through effectively lobbying the US Congress.
In the 2000s Lost Decade, US Big Corps have gotten way too strong relative to the US Government. I think it’s high time to reverse this very damaging trend.
I think the US Government should take steps to spread some of the massive economic benefits received by Big Corps to the entire US citizenry and to US small businesses.
First, I think it is only fair that many in the long list of tax loopholes of each of these six Big Corp subgroups be closed, and the funds raised here to be used to finance desperately needed private sector job creation.
Second, something has to be done about the damaging effect of lobbying. As one step, I would put a very stiff, highly progressive gross receipts tax on lobbying revenue, and use the funds raised here to also finance private sector job creation.
And third, I think the US Government should act to reduce the size of the largest of the US Big Corps, which have done so much damage to both the US economy and to so many US citizens. I think that when a company gets to the stage of having a massive profit, it spends way too much time in profit improvement initiatives like creative tax loophole strategies, productivity cost reduction, and business acquisitions, with this time being taken away from the highly desirable initiatives to organically grow their business. Further, when a company gets so large, it spends an inordinate amount of time lobbying the US Congress.
To approach this problem objectively, here are the top 10 of the 30 Dow Industrials in total core Pretax Earnings for the first half of the most recent five years (first half 2006-2010):
...1 Exxon Mobil............$150 bil
...2 Chevron..................$ 77 bil
...3 Bank of America......$ 55 bil
...4 Pfizer......................$ 54 bil
...5 Microsoft................$ 50 bil
...6 Walmart..................$ 49 bil
...7 GE...........................$ 49 bil
...8 AT&T.......................$ 47 bil
...9 JP Morgan Chase.....$ 47 bil
..10 JNJ.........................$ 44 bil
In total, these top ten comprise an amazingly high 63% of the total earnings of all 30 Dow Industrial companies for the same period. And there is a substantial drop in earnings after the top ten of the Dow 30, with #11 Verizon generating comparable profit of $35 bil.
In reviewing comparable profits of the large non-Dow companies, there is only one company which would make it into the Dow top ten in core Pretax Earnings....ConocoPhillips, which registered total core Pretax Earnings for the comparable period of $57 bil. After ConocoPhillips, there is a huge drop down in total profits of the largest non-Dow companies for the first half of the past five years...to #2 Wells Fargo at $37 bil.
To show the economic dominance of Big Oil, ConocoPhillips would be #3 in the above Dow 30 in profits. Thus, the top three US profit generators in the first half of the past five years (first half 2006-2010) were all Oil Companies!
I think it is helpful to compare the above top 13 profit list with what existed in the late 1990s Go-Go years of the US economy. Here are the rankings in after-tax total profit of US companies for the five years from 1995 to 1999, with the information taken from Fortune Magazine profit rankings.
... 1 GE.......................$42 bil
... 2 Exxon Mobil........$37 bil
... 3 Altria Group........$31 bil
... 4 IBM.....................$30 bil
... 5 Intel....................$29 bil
... 6 Ford....................$29 bil*
... 7 General Motors....$28 bil
... 8 Merck..................$23 bil
... 9 Citigroup..............$23 bil
...10 DuPont...............$22 bil
...11 Bank of America..$21 bil
...12 AT&T..................$21 bil
...13 Microsoft............$19 bil
* Excluding $16 bil gain from spinning off The Associates
In comparing the two lists, here are some key conclusions:
*****There was only one Big Oil company in the late 1990s decade (Exxon Mobil at #2) vs. three now, and with all three at the very top of the list. I think having so much Big Oil dominance now is extremely destructive to the US economy. Big Oil tax loopholes should be closed and Big Oil needs to be broken up.
*****There were three high tech companies in the late 1990s (#4 IBM, #5 Intel, and #13 Microsoft) and now only one (#5 Microsoft). To be a worldwide economic powerhouse, I think the US needs to have an even much more robust high tech industry. I think it would be wise to give highly-charged US tax incentives (investment tax credits, jobs tax credits, R&D tax credits) to this critical industry. And the US jobs created here are quality higher paying jobs.
*****There were six manufacturers in the late 1990s (#1 GE, #4 IBM, #5 Intel, #6 Ford, #7 General Motors, and #10 DuPont) and even a couple more that do some manufacturing vs. only one now (a much lower #7 GE) and a couple others that do some manufacturing. Clearly, the US government has to prop up its entire critical manufacturing industry with highly robust wise tax incentives like the investment tax credit, jobs tax credit and R&D tax credit. A very robust, world-class US manufacturing sector, with a particular focus on green energy, is needed for the US to be an economic powerhouse on the world scene.
*****The late 1990s list has total profits much closer together than that in the current list. It is not good for the US economy to have one company dominate a sector like Walmart, Microsoft and Exxon Mobil do. For competitive reasons, it is much better for the US economy to have profitability of the top companies to be much closer together than they are now. I wouldn't give any tax incentives to the dominant companies in an industry. Instead, I would give the tax incentives to all the other companies in a critical industry, with particular emphasis on the smaller companies and on domestic companies of all sizes.
Anyway, to substantially increase competition, I think the entire country would benefit dramatically if all of the above 11 giant pseudo-monopoly US Corps on the current top profit list (i.e. Dow top ten plus ConocoPhillips) were broken up into parts. And then due to their just incredible dominance, I would consider breaking up Exxon Mobil into five parts and Chevron into three parts. I would consider breaking up the remaining 9 companies into two parts each.
In addition, to significantly increase competition, I would also break up some of the Big Health Insurance industry. Because of their size and pseudo-monopoly status in setting prices, I would consider breaking up United Health Group into three parts and Wellpoint into two parts.
When you think about it, the only option US citizens have of turning around the financial devastation caused by Big Corp lobbyists is to vote smartly. I encourage everyone to very thoroughly research all of the candidates running in the November 2010 elections. And for the candidates who have supported Big Multinational Corps, Big Oil, Big Financial, Big Health Insurance, Big Pharma and/or Big Hospital, we should make sure that these candidates do not get elected or re-elected.
