Don’t count on the profitability of the financial services sector as a leading indicator of anything. Well, anything other than financial services compensation.
A stupendous recovery in profits is underway at U.S. banks, brokerages and insurance companies, but the big picture shows that for the rest of us that rebound may prove sterile.
Data from the U.S. Bureau of Economic Analysis shows the sector had an absolutely cracking 2009, with profits rising in the fourth quarter by 240 percent against the same period a year before.
While overall corporate profits were up 30 percent the vast and less favoured parts of the economy outside of finance only managed to squeak out a 5.2 percent increase in profitability, and that came courtesy of an employment-savaging deflation in the costs of production.
In other words, the financial sector coined it as it benefited from cheap money, government insurance, and a steep yield curve while everybody else ate dry bread while squeezing more out of employees and holding wages down.