{"id":3284,"date":"2016-06-13T19:31:00","date_gmt":"2016-06-13T23:31:00","guid":{"rendered":"http:\/\/162.223.13.186\/~zacksim\/corporate-profits-is-the-party-over\/"},"modified":"2022-02-26T13:22:14","modified_gmt":"2022-02-26T13:22:14","slug":"corporate-profits-is-the-party-over","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/corporate-profits-is-the-party-over\/","title":{"rendered":"Corporate Profits: Is the Party Over?"},"content":{"rendered":"

In 2015, U.S. corporate earnings posted negative growth <\/em>for the first time since 2008. Last year, profits fell -3.10% from the previous year.
\n2016-06-14_-_Corporate_Profits_in_America_-_Image_1_of_6.png<\/p>\n

\u00a02016-06-14_-_Corporate_Profits_in_America_-_Image_2_of_6.pngSource: Bureau of Economic Analysis<\/strong><\/span><\/p>\n

Here are three insights via charts showing factors that challenged Corporate America\u2019s earnings last year:<\/p>\n

    \n
  1. Fading Global Demand Takes a Toll<\/strong><\/li>\n<\/ol>\n

    Profits accrued from outside the U.S. fared worse than that from the domestic market in 2015. What\u2019s more, trade deficits widened last year by +6.2%, as a strong dollar hurt foreigners\u2019 ability to buy U.S. exports.<\/p>\n

    2016-06-14_-_Corporate_Profits_in_America_-_Image_3_of_6--.png
    \nSource: Bureau of Economic Analysis<\/em><\/strong><\/span><\/p>\n

    \u00a02016-06-14_-_Corporate_Profits_in_America_-_Image_4_of_6.pngSource: Bureau of Economic Analysis<\/strong><\/span><\/em><\/p>\n

      \n
    1. Tightening Labor Possibly Squeezing Earnings<\/strong><\/li>\n<\/ol>\n

      While profits decelerated through 2015, worker compensation growth did not drop and the number of employees expanded. A tight labor market could have compressed corporate profits.<\/p>\n

       <\/p>\n

      2016-06-14_-_Corporate_Profits_in_America_-_Image_5_of_6.png<\/p>\n

      Source: Bureau of Labor Statistics (for pay data); Bureau of Economic Analysis (for Corp. Profit data)<\/span><\/strong><\/em><\/p>\n

      2016-06-14_-_Corporate_Profits_in_America_-_Image_6_of_6.pngSource: Bureau of Labor Statistics<\/strong><\/span><\/p>\n

        \n
      1. The Biggest Scapegoat of All \u2013 Energy <\/strong><\/li>\n<\/ol>\n

        A large part of last year\u2019s profit decline can be attributed to the Energy sector (petroleum and coal producers\u2019 profits slumped more than -75%). Numerous bankruptcies rattled the industry and strong players all had to cut headcount and reduce private fixed investment, yet they still couldn\u2019t keep up with the impact of falling oil prices. The good news is that the earnings decline may just be limited to 2015 for the Energy Sector\u2014crude oil prices have already bounced significantly from their lows and appear to resettling in a more predictable range. This should boost overall S&P earnings in the back half of the year.<\/p>\n

        Bottom Line for Investors<\/strong><\/p>\n

        In spite of falling profits last year, the overall economy continues to grow\u2014Q4 GDP growth figures were bolstered by a strong consumer sector and Q1 2016 GDP was estimated to have expanded by 0.8%, a bit better than expected.\u00a0 It\u2019s only an estimate, at this point, but corporate profits appear better as well\u2014the Bureau of Economic Analysis stated in late May that profits from current production (corporate profits with inventory valuation adjustment (IVA) and\u00a0capital consumption adjustment (CCAdj)) increased $6.5 billion in the first quarter, in contrast to a decrease of $159.6 billion in the fourth.<\/p>\n

        That trend is in line with the research we\u2019re viewing as well. According to our latest Zacks Consensus Market Strategy report, bottom-up and top-down strategists estimate S&P 500 earnings to grow by +2.5% and +5.5% respectively in 2016.<\/p>\n

        \n","protected":false},"excerpt":{"rendered":"

        In 2015, U.S. corporate earnings posted negative growth for the first time since 2008. Last year, profits fell -3.10% from […]<\/p>\n","protected":false},"author":1,"featured_media":4124,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,72],"tags":[],"class_list":["post-3284","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-private-client-group","category-steady-investor-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3284","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=3284"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3284\/revisions"}],"predecessor-version":[{"id":11325,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/3284\/revisions\/11325"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=3284"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=3284"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=3284"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}