LefTake

The shareholders (OWNERS) lend the company money and receive stock in return. Some company stocks pay dividends; other company's depend on the stock's value in the market place to keep investors happy. If the investors are not repaid for risking their money they will sell their interest in the company and put the money elsewhere. Without investment money loans are harder to get, payroll becomes harder to make, and suppliers tighten up payment options for materials. If you are invested in a 403b, 401k, roth or standard IRA there is an overwhelming chance you are a part-owner in these companies or ones like it. It isn't just those "at the top" who make money when the company posts gains.

When a company experiences upsets in its business like falling sales, greater competition, or higher costs it has to make changes in order to remain profitable. Fixed costs such as rent, property tax, insurance, interest on loans etc a business has little control over so they focus on variable costs to keep the company in the black. Payroll unfortunately is a variable cost. In profitable times most of a company's focus is on sales and production and employment rises to keep production up and provide nonessential tasks.

Let's make you an executive of ShowMeTheMoney Inc. Your sales of Coffee Party Napkins have fallen and investment activity has gone flat. What do you do?

Eliminate all stock dividends and drive away money you need to continue in business?

Buy cheaper materials and hope the public doesn't notice the inferior product?

Lower everyone's pay to make up the difference for the lost sales and hope your skilled employees don't scatter to other jobs. I'll make this easy for you. It's a non-union plant so there isn't a contract and you aren't at risk of a strike.

Eliminate non-essential jobs. This naturally will include production floor workers as well as managerial positions. Every one left shoulders the additional work but you keep 80% of the work force employed.

Cut back other expenses like sales travel, employee benefits and other expendable costs.

Do nothing and hope your still in business when the economy recovers.

Or _______________?

IMO Companies are not expanding because there is so much uncertainty in the market. They are building cash reserves because they want to be able to survive if the economy falters more. The Federal government hasn't done much to inspire confidence in the market.