Stock Buybacks Soar, as Earnings of Goods-Producing Companies Contract

Aug. 6, 2019 (EIRNS)—A bad combination for American non-financial corporations is materializing. Stock buybacks are forecast to be near $1 trillion in 2019, 13% higher than 2018. Buybacks so far this year equal 104% of corporations’ liquid assets, so a significant portion of the buybacks are being financed by borrowing. This shows that the Trump December 2017 tax cut supply of cash for buybacks has run out. Corporate cash on hand has declined over the past 12 months through July by 15% or $270 billion. Simultaneously, corporations are foolishly increasing their debt leverage, reducing their liquid assets and reducing their equity (by taking their own stock off the market).

Worsening this is the decline in earnings (profit) of goods-producing companies. For the first six months of 2019, the following sectors have reported earnings higher than 2018: “healthcare” companies and “financial” companies up 5%; real estate up 1.5%. But the goods-producing and distributing sectors have earnings lower than 2018: “Consumer staples” down 2%; consumer durables producers down 4%; IT companies down 11.9%; energy companies down 9.8%; industrial companies down 12.2%; materials producers down 18.8%, according to FactSet. Earnings are much lower in these sectors because manufacturing and mining are contracting. This is the process that will trigger collapse of the non-financial corporate debt bubble at some point soon.