One of the questions on analysts’ minds lately is whether stock prices can keep moving up when corporate sales and profits are falling. But the same can be asked about the overall economy. Why would companies hire more people if they’re selling less stuff? The answer is that they probably won’t. As the chart below — put together by good friend Michael Pollaro — illustrates, business sales and employment have tracked closely since at least the 1990s. When sales have fallen, companies have responded with less hiring and more firing.
But for the past year sales have declined while reported employment has risen. Unless this relationship no longer holds, one of these lines will have to change course very soon. And since sales are beyond anyone’s control, it’s a safe bet that employment will be the one to give.
