Companies fail to use stock market gains to create jobs
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The surging Dow Jones industrial average has boosted stock portfolios, but it's done little for most workers on Long Island and elsewhere as companies have used their gains to reap record profits instead of create jobs.
The Dow's record close comes as Long Island's recovery from the recession lags behind the rest of the nation. Even before superstorm Sandy ravaged the South Shore, Nassau and Suffolk counties were struggling to retain young workers, attract new businesses and confront the challenges of having an aging population and dwindling space to develop.
The disparity between the soaring Dow and the leaden economy stems in part from strategies that large companies adopted during the recession. They trimmed workers, froze wages and became more technologically savvy, all in an effort to boost productivity and, in turn, profits. But the strategy has done little, economists said, to boost employment and the fortunes of average workers.
"It's not trickling down to the job market," said Chris Fidis, 54, of West Hempstead, who lost his job as a telecommunications project manager in May. "It's a major greed factor."
Nonetheless, the Dow does matter here, said Pearl Kamer, chief economist for the Long Island Association. Retirement accounts rise and fall with financial markets. And many Long Islanders own stock directly. As the market goes up, so does their affluence.
"It makes people feel wealthier," Kamer said. "It's paper wealth, but it's wealth."
Jeffrey Stark of Huntington watched in dismay during 2008 as the Dow plunged following the housing market collapse, sending the value of his mutual fund portfolio down 30 percent to 40 percent. He wanted to bail out. But his friend, a broker, persuaded him to be patient and keep his investments in place.
"I knew it was going to be the biggest mistake of my life -- or the best move," said Stark, 61, who works for a nonprofit agency. Within the last few months, Stark watched those losses swing back to gains.
Martin Blumberg of Melville risked his money in the market, too.
The 71-year-old retired last year from Auto Barn, the chain of automotive-supply stores his family owns. He considered taking a conservative approach by investing in bonds. But Blumberg wanted higher returns. So he took his chance on stocks, investing in a mix of biotech and Internet companies and blue chip stocks such as General Electric.
So far, his portfolio is up at least 10 percent this year, Blumberg said. And he's optimistic it will keep rising. "I think the bull market has two to three years to go," he said.
Still, many mom-and-pop investors nearing retirement are wary of stocks after suffering losses in the 2000 tech meltdown and 2008 financial crisis, said Alan Newman, editor of Crosscurrents, an investment newsletter published in Wantagh.
"I don't think they are going back in there," he said. "They would be taking an awful chance."
Trading, however, has changed. Technology has reduced the need for so many workers. And online buying and selling means traders don't need to actually be in New York City, where the number of securities- and commodities-related jobs has fallen 15 percent since 2000, to 170,000.
"It used to be that what was good for Wall Street was good for Long Island," said Irwin Kellner, chief economist for the MarketWatch information service and a former Hofstra University professor. "That's not as true as it used to be."