If you listen to some of the economic advisors to President Trump, particularly at the Republican convention, you would may think the economy has turned around and we are going to have a V shaped rebound. In every economy, credit and access to credit makes the economy forward or backward. In a recession, bankers stop giving loans to small and medium sized businesses, even those that could be expanding. This action causes the economy to contract even more, which suggests one method to determine how the economy is doing is looking to the big banks of the country and access to credit.
Generally the big banks, which are the banks too big to fail, have a great impact on the economy both in the cities where their headquarters and back offices are, for those jobs tend to be steady. Most of the time working for a bank means a job for a number of years. The banks make money, the determination is how much and relative to each other.
COVID came along and the heads of the banks said as best they can, they will not lay off anyone in 2000 because it is the wrong thing to do. However, with people working for home bank executives and other executives around the economy are determining people roles or staff can be cut. Management has been surprised that people working from home can be productive as they come to the office. Sometimes more productive because the lack of commuting, people work longer hours for the same salary.
In an article by Elizabeth Dilts Marshall. Anirban Sen and Imani Moise of Reuters, it is expected that banks will trim their payrolls by 5 to 10%. Most of them will say it is part of a strategic plan but in reality the reason is they can. In a related article Coca-Cola is offering buyouts as it slashes jobs. Expect more large corporations to cut payrolls because they have more people than we need, which is the opposite effect if the recovery was a V shaped. Banks are suggesting the recovery will be more of a L or W, time will tell.
Linking to dividend paying stocks, in the service economy the biggest expense tends to be people and all companies are using or examining artificial intelligence and digital solution to cut costs to use less people. (one bank uses AI to predict based on income and expenditures to their accounts who will make and those who will likely miss a payment). Everyone at the institution thinks it is the correct thing to do because the layoffs will affect the other person. As an investor, you want the company to continually examine costs to keep them low to ensure profits come on a regular basis to pay for the dividend. The investor in you and the social person tends can conflict particularly if you know someone, but life goes on.
There are more questions than answers, till the next time – to raising questions.