Open side-bar Menu
 The AEC Lens
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick is Chief Economist for ConstructConnect. He is a frequent contributor to the Daily Commercial News and the Journal of Commerce. He has delivered presentations throughout North America on the Canadian, United States and world construction outlooks. A trusted and often-quoted source for … More »

U.S. Corporate Profit Growth Stymied by Energy Sector Slide

 
April 5th, 2016 by Alex Carrick, Chief Economist at ConstructConnect

Article source: CMDGroup

North America’s major stock market indices have taken investors on a ‘theme park’ ride over the past 12 months − as can be seen from Graph 1. More often than not, it hasn’t been much fun.

There were substantial dips for all four indices – Dow Jones Industrials (DJI), the S&P 500, NASDAQ and the Toronto Stock Exchange (TSX) − in September of last year, followed by recovery for the U.S. series, and then another crater in the January-February period of this year.

Canada’s TSX stayed mainly down once it faltered in the fall of last year.

In the most recent month, however, there were notable improvements once again. At the close of trading in March 2016, the DJI, S&P 500 and NASDAQ were all within 1.0% of their levels achieved a year prior.

The TSX moved +4.9% during the month of March, but was still -9.4% year over year.

Worry has centered on the likely performance of corporate profits. It’s well known that in the energy sector, the low price of oil is taking a heavy toll on the revenues of exploration and extraction companies, as well as their service and material suppliers.

Plus there’s the danger of resulting loan payment delinquencies having an adverse effect on earnings in the financial sector.

And the income of many internationally-oriented manufacturers have been put in jeopardy by the appreciation in value of the greenback. But that’s another story, having to do with the Federal Reserve’s interest rate aspirations.

Individual company financial results are common knowledge once they have been released to the media. But the overall results for the economy as a whole first appear in the ‘Third Estimate’ of gross domestic product (GDP) issued by the Bureau of Economic Analysis (BEA).

The months for ‘Third Estimate’ releases are June (for Q1), September (for Q2), December (for Q3) and March (for Q4 of the preceding year).

America’s corporate profit figures for Q4, 2015 were revealed by the BEA on March 25. Some of the key findings are summarized in Table 1, accompanying this EAAG.

As expected, they showed retrenchment. Total before tax profits in Q4 2015 were -11.5% year over year (y/y) and -7.8% quarter to quarter (q/q).

After tax, they were worse, at -15.0% and -8.4% respectively.

Sticking with ‘before tax’ profits, since those are the numbers that are detailed in Table 12 of the BEA’s press release, the financial sector recorded a gain of +2.3% y/y, but a decline of -5.2% q/q. Manufacturing slipped according to both measures, -15.6% y/y and -26.1% q/q. And firms in the automotive sector saw a big jump of +43.7% y/y but a pull-back of -9.5% q/q.

Those are the high-level results. Let’s delve a little deeper into the numbers.

In nominal terms, corporate profits (seasonally adjusted and annualized) in the manufacturing sector fell by $139 billion from Q3 to Q4 in 2015. Almost all of that large decline (-$124.3 billion) originated in the ‘petroleum and coal products’ sector.

‘Petroleum and coal products’ profits went from $57.3 billion in Q4 2014 and $46.9 billion in Q3 2015 to a loss of -$77.5 billion in Q4 2015.

Excluding energy firms, total profits were still down both y/y and q/q, but not to as significant a degree (i.e., -5.3% y/y instead of -11.5% y/y and -1.8% q/q instead of -7.8% q/q respectively).

There are sure to be some further profit hits as the remainder of 2015 unfolds, but the sincere hope is that much of the most serious damage has already been inflicted, especially if the global price of oil stays near or above $40 USD per barrel.

Finally, Table 2 sets out how a number of other widely-followed stock market indices based elsewhere around the world have been faring.

While those indices continue to display disappointing year-over-year weakness, it’s also apparent that nearly everywhere, investors enjoyed a more prosperous March.

Table 1: Some Key U.S. Corporate Profit Measures
(Based on ‘Current’ $ Billions)
LATEST QUARTER (Q4 2015)
2014 2015
VS 2013 VS 2014 VS Q4 2014 VS Q3 2015
(Y/Y) (Y/Y) (Y/Y) (Q/Q)
Total 1.7% -3.1% -11.5% -7.8%
Financial 0.0% 4.6% 2.3% -5.2%
Manufacturing 3.1% 13.6% -15.6% -26.1%
Motor Vehicles 12.7% 84.7% 43.7% -9.5%
Total minus Petroleum & Coal 1.5% -1.2% -5.3% -1.8%
   Total after Taxes: -0.6% -5.1% -15.0% -8.4%
Data source: Bureau of Economic Analysis (BEA) / Table: CMD
Table 2: Some Other Key International Stock Market Indices
MONTH-END
CLOSING VALUE YEAR/ MONTH/
STOCK INDEX: MAR 2016 YEAR/ MONTH
iShares MSCI Emerging Markets Index (EEM):           34.25 -14.7% 13.0%
iShares MSCI Emerging Markets Asia Index (EEMA):           51.72 -15.6% 10.2%
iShares MSCI Emerging Markets Latin America Index (EEML):           28.78 -12.5% 18.8%
London FTSE 100 (^FTSE):      6,175.00 -8.8% 1.3%
German DAX 30 (^GDAXI)      9,966.00 -16.7% 5.0%
Hong Kong Hang Seng (^HSI):    20,777.00 -16.6% 8.7%
Tokyo Nikkei 225 (^N225):    16,759.00 -12.7% 4.6%
Shanghai Composite Index ETF (510210.SS)      3,004.00 -19.8% 11.8%
iShares MSCI Frontier 100 ETF for pre-emerging markets (FM):           24.57 -17.4% 2.8%
“Ticker symbols” are in brackets. MSCI (formerly Morgan Stanley Capital International) is a leading provider of investment decision support tools, with indices as one specialty. “iShares” is a web site that specializes in “exchange traded funds”, or ETFs, managed by BlackRock Investments LLC.
Data source: finance.yahoo.com / Table: CMD.

Table 3: Stock exchanges – performances of key indices – March 31, 2016
INDEX 52-WEEK LOW 52-WEEK HIGH YEAR AGO
(MAR 31, 2015)
MONTH AGO
(FEB 29, 2016)
LATEST MONTH-END CLOSING PRICES
(MAR 31, 2016)
PER CENT CHANGE,
LATEST VERSUS
52-WEEK LOW 52-WEEK HIGH YEAR AGO MONTH AGO
Dow Jones Industrials
NYSE (^dji)
Aug 24 15
15,370
May 19 15
18,351
17,776 16,517 17,685 15.1% -3.6% -0.5% 7.1%
S & P 500
NYSE (^gspc)
Feb 11 16
1,810
May 20 15
2,135
2,068 1,932 2,060 13.8% -3.5% -0.4% 6.6%
NASDAQ
(^ixic)
Feb 11 16
4,210
Jul 20 15
5,232
4,901 4,558 4,870 15.7% -6.9% -0.6% 6.8%
S & P/TSX Composite
TSX (^gsptse)
Jan 20 16
11,531
Apr 15 15
15,525
14,902 12,860 13,494 17.0% -13.1% -9.4% 4.9%
Sources: New York Stock Exchange (NYSE), Standard and Poor›s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Table: CMD.

Graph 1: Latest-year performances of key stock market indices
Latest-year performances of key stock market indices
*Each month’s closing figure versus the March, 2015 closing figure for the index.
The Key Stock Market Indices are:
1) New York Stock Exchange – Dow-Jones Industrials (30);
2) New York Stock Exchange – Standard and Poor’s (S & P) (500);
3) National Association of Securities Dealers Automated Quotations – NASDAQ Composite Index;
4) Toronto Stock Exchange – S & P/TSX Composite.
Data sources: New York Stock Exchange (NYSE), Standard and Poor’ s (S & P), National Association of
Securities Dealers Automated Quotations (NASDAQ), Toronto Stock Exchange (TSE) and Reuters.
Chart: CMD

Related posts:

Tags: , , , , , , , , , , , , ,

Leave a Reply

GRAPHISOFT: ARCHICAD download 30-day FREE trial
Graphisoft ARCHICAD  Download a 30-Day FREE trial
TurboCAD pro : Start at $299
CADalog.com - Countless CAD add-ons, plug-ins and more.



Internet Business Systems © 2016 Internet Business Systems, Inc.
595 Millich Dr., Suite 216, Campbell, CA 95008
+1 (408)-337-6870 — Contact Us, or visit our other sites:
TechJobsCafe - Technical Jobs and Resumes EDACafe - Electronic Design Automation GISCafe - Geographical Information Services  MCADCafe - Mechanical Design and Engineering ShareCG - Share Computer Graphic (CG) Animation, 3D Art and 3D Models
  Privacy Policy