Falling Profits of U.S. Corporations Point to Recession

Sept. 2, 2019 (EIRNS)—A report on U.S. corporate profits has been done by Director of Global Economic Research Joseph Carson of the big Alliance Bernstein wealth management firm, based on data just released by the U.S. Bureau of Economic Research. Carson finds that operating profit margins (operating profit as a share of revenue) have declined overall by 40% in the past five years 2015 through 2019 so far. It is “a true earnings recession,” says Carson, “with the potential to trigger cuts in investment [it already has—ed.], inventories, employment and then consumer spending.”

Further, such a drop in corporate profit “has always preceded recessions in years past…. The profit and margins data shows how vulnerable the economy is at the present time, especially with business leverage [debt] at record highs” (emphasis in original).

The plunge in profit margins has been masked not only the huge corporate tax cut that took effect Jan. 1, 2018—which enabled after-tax profits to rise during that year only—but by the equally huge wave of stock buybacks financed by that tax cut and by extra debt. Buybacks both increase debt and reduce the number of a company’s shares outstanding, and companies always report their profits as per-share of stock outstanding!

In another of many industrial decline markers now showing in the U.S. economy, refineries have processed 257,000 barrels per day (bpd) less oil in the first seven months of 2019 compared to 2018, according to the Energy Information Agency and reported by OilPrice.com. This has not resulted in any decline in oil product stocks, showing that there has also been a drop in economic demand—even through this year’s peak driving season—with no significant change in prices to explain it. The biggest factor in this refining drop was the closure in May of a large Philadelphia refinery complex in bankruptcy liquidation. But processing also fell by 87,000 bpd in the Midwest, 15,000 bpd on the Gulf Coast and 45,000 bpd on the West Coast.