The Stash

What Ford's Profits Tell Us About the Recovery

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The most intriguing wrinkle in today's news that Ford booked a third-quarter profit was this from the Dow Jones story:

The North America unit, which accounts for 42% of Ford's overall vehicle sales, reported pretax operating profit of $357 million compared with a loss of $2.6 billion a year earlier. The improvement came from job cuts, lower costs for materials and consumers buying more high-end models equipped with technological features [emphasis added].

Back in September, David Leonhardt wrote an interesting (and widely chewed over) column about how the recession was affecting two different groups very differently: The millions of people who'd lost their jobs were having a lot of trouble finding new work and making ends meet. But those who still had jobs were fairly unlikely to lose them; many were even enjoying wage increases. As Leonhardt explained it:

Try thinking of it this way: All of the unemployed people in the country are gathered in a huge gymnasium that’s been turned into a job search center. The fact that this recession is the worst in a generation means that there are many, many people in the gym. The fact that the economy is churning so slowly means that there is not much traffic into and out of the gym.

If you’re inside, you will have a hard time getting out. Yet if you’re lucky enough to be outside the gym, you will probably be able to stay there. The consequences of a job loss are terribly high, but given that the unemployment rate is almost 10 percent the odds of job loss are surprisingly low.

I'm guessing that, for the first several months of this year, the people outside the gym were too concerned about winding up inside the gym to even buy a car, much less splurge on one with fancy features. But now that it looks like the economy has stabilized, these people are opening up their wallets again. And, when they do, many can afford more than just the basics.

Going forward, the real problem may be the bifurcation Leonhardt was writing about: An economy that feels okay for tens of millions of people, but which feels absolutely terrible for millions more. Obviously, figuring out how to ease the pain for that latter group (while minimizing the flow of people into it and maximizing the flow out of it) will be the central public policy challenge of the recovery.

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