My US corporate sales growth momentum indicator hit an interim peak of 7.1% yr/yr in Jul. 2014.
Since then it has declined to 1.1% yr/yr currently. The sharp loss of positive momentum reflects
slowing physical volume growth in general, a continuation of a deterioration in product / service
pricing power, a stronger US dollar (translation losses) and the sharp erosion of oil, gas and
sensitive materials pricing power. Note, as well, that global industrial output has slowed from
4% yr/yr down to 2% over the same period.
Normally, such a quick slide in sales growth would lead to substantial downside pressure on net
per share. SP 500 earnings have been declining from an annual rate of $117 per share to about $108
presently, but matters could have been much worse. However, the fall in oil and gas revenues and
in basic materials sales has resulted in significant cost reductions and profit margin improvement
for the many businesses that are net users of such products. Net users of oil, gas and basics manage
to generate 4% sales growth as a group and have seen improvement in selling price / cost ratios. On
top, a number of SP 500 companies have benefited from share buybacks.
Weekly and monthly leading economic indicators do not yet suggest a positive turnaround in SP
500 net per share, and the final calendar quarter estimate for 2015 now looks vulnerable. As posted
below on 9/27, I am expecting to see much improved business sales performance as the economy
moves through 2016 and as the substantial excess liquidity in the economy presently is turned into
higher transaction levels. The risk here remains the same as I have highlighted for a year, namely
that the economy must successfully transition away from dependence on QE liquidity to the ample
private sector internal and credit resources available to it already. The potential for stronger business
performance is surely there. Very soon, business will need to take a collective deep breath and have
the confidence to move on and up.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!