There is a great deal of hand-wringing over slumping home prices and what that means for consumers, especially those who have borrowed on their homes. Sorry, but homes are just part of the overall financial portfolio that consumers have. The Federal Reserve has reported that household net worth is now $54 trillion dollars, and losses in housing equity have been covered, and then some, by the rising stock market and rising wages. Remember, that's net worth, and that's after deducting for mortgages and loans. Borrowing is slowing, which some people think is a good thing, but it is actually in response to the economy slowing. Borrowing is a measure of confidence people have about the future, and it is a far better indicator of upcoming economic activity than asking people if they are confident or not. Watch what people do; ignore what they say.

The Commerce Department's commercial printing profits report was quite good. The four-quarter moving annualized total of inflation-adjusted industry profits is now $4.59 billion. The profits for the quarter itself were $1.27 billion, the highest since Q3-2004 when it was $1.36 billion. The profits before interest and taxes were 5.7%, the highest since Q3-2003, when it was 6%. This is the best industry profit performance in three years, and the data are slowly getting better and better. This is a minor rise, but it's a good rise; we're inching closer to the 12-year average of 6.8% profits before income taxes, and we have had an increase in annualized profits for four quarters in a row.

The question is how the industry got there, and it looks like it came from downsizing. Compared to Q3-2005, sales per employee have dropped from $143,000 to $138,100 in Q3-2006. How can profits be going up? Because the number of employees has declined. In this period, the industry had -9,300 fewer employees. Production employees rose by +3,600, but employees in non-production roles decreased by -12,900. That -6.5% decrease in these employees and their overhead costs sent the profits per employee up, from $5,400 per employee to $7,200 per employee. If we divide the profits by the number of non-production employees only, they rose from $17,500 to $24,400. The decrease in administrative overhead costs was so significant that the industry increased its profits despite the decrease in sales per employee. Like they say, it's not how much you make, it's how much you keep.