News about the end of the
recession
can seem peculiar or unfamiliar to many workers or to investors who
haven't allocated their funds into the right sectors. Though
unemployment is on the decline it remains historically high, and
the swelling army of those who've left the workforce completely
continues to grow. The S&P 500 (
SPY
) remains below its levels of five years ago, though the
NASDAQ PowerShares
ETF
(
QQQ
) boomed since the recession on the strength of flagship firms like
Apple (
AAPL
).
For many major large-cap corporations, though, the recession
offered a chance to shed costly employees, outsource processes to
cheaper international labor, buy up assets and acquire
competitors
at bargain basement prices. A new report from
The Wall Street Journal
shows that the sum total sales,
earnings
and employment of the S&P 500 companies now exceeds the same
figure in 2007.
For instance, the Journal wrote, the average revenue per employee
of these firms was $378,000 five years ago; it now stands at
$420,000, an 11 percent increase in the rate of
profit
these firms derive from their labor pool. A lot of the extra money
is going into other forms of
capital
- the Journal report indicated that capital expenditures surged 19
percent in 2011, compared to a 9 percent increase in 2010. Across
the board, the firms now devote almost 6 percent of their income to
capital expenditure.
When demand in the domestic
market
weakened, consumer firms looked overseas. The WSJ cites McDonald's
(
MCD
) and Starbucks (
SBUX
) as examples of companies which derived massive growth from
international revenue expansion, growing two to three times as fast
in formerly underexploited markets like China, Brazil and India.
International expansion, capital accumulation and labor
cost-cutting are easiest to
leverage
in a large organization, so the benefits of these strategies tend
to accrue to large-cap companies. A look at ETF trends over
the last year seems to back this up: while SPY is up almost 4
percent since April 2010, Vanguard's Small-Cap ETF (
VB
) is down about 1.5 percent and the iShares Russell 2000 ETF (
IWM
) declined nearly 3 percent.
But over the long term, investors might be better served by small
companies, as the benefits of growth may not necessarily accrue to
shareholders of larger firms. Of those same 3 funds, SPY delivered
the lowest returns - just under 23 percent - over the five-year
period measured by the WSJ. The Russell 2000 ETF climbed more than
32 percent while the Vanguard fund rose over 36 percent since April
2007.