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By Michael Lombardi

The Growing Disparity Between Corporate Profits and WagesAs more and more public companies warn about weak fourth-quarter corporate earnings reports, quite a number of them are resorting to the use of words like “corporate restructuring” or “cost cutting.” At the very core, these cost-cutting measures mean reducing the number of employees working at these companies.

Let’s face the facts: companies on key stock indices are struggling to keep revenue and profits rising. The share buyback “thing” is getting old (after all, how much money do these companies have to throw at stock buybacks?), so to show better corporate earnings, reducing work forces is the easiest thing to do.

Wal-Mart Stores, Inc. (NYSE:WMT) says it plans to lay off 2,300 assistant managers and hourly employees at its Sam’s Club stores. (Source: CNBC, January 24, 2014.)

Abbott Laboratories (NYSE:ABT) recently let go an unspecified number of employees at its Lake County headquarters. In the conference call to investors about its fourth-quarter corporate earnings, the CFO of the company simply said, “[the company] will take further actions to reduce out expenses … get our support structure at appropriate levels.” (Source: “Abbott Laboratories launches round of layoffs,” Chicago Tribune, January 28, 2014.)

And as I told you last week …

Intel Corporation (NASDAQ:INTC) said it will be reducing its workforce by 5,000 this year. Here’s what the company spokesman, Chris Kraeuter, had to say: “This is part of aligning our human resources to meet business needs.” (Source: “Intel to reduce global workforce by five percent in 2014,” Reuters, January 17, 2014.) Intel had flat fourth-quarter 2013 corporate earnings.

Hewlett-Packard Company (NYSE:HPQ), another major company in the key stock indices, is taking a similar approach. In 2014, it is expected to cut its workforce, according to its long-term restructuring plan — 34,000 jobs, or 11% of the total workforce, will disappear.

A vicious cycle, dear reader, is starting. As more companies on key stock indices take steps to reduce their workforces because 1) revenue growth has stalled, and 2) pressure is on to report corporate earnings growth, the U.S. economic picture, which is bleak already, just gets worse as the number of unemployed increases.

The chart we’ve created below looks at the corporate earnings of public companies compared to the median household income in the U.S. You can easily see that since the Credit Crisis, corporate profits have skyrocketed, while median household income in this country has collapsed.

(click to enlarge)

The inverse relationship between corporate earnings and median household income will eventually create a hurdle for consumption. In other words, demand for non-essential goods from consumers in the economy will deteriorate.

In his State of the Union address the other night, President Obama touched on the growing disparity between the rich (the shareholders) in this country and the poor (the workers) — the spread has never been so wide. If the trend continues, and I believe it will, the disparity between the rich and poor — “the Great Squeeze” corporations are about to place on their workers — will cause further havoc on the economy. Just add it to the list of things working against the stock market.

Disclosure: None

Source: The Great Squeeze Play