Year: 2023

U.S. Nonfarm Productivity Falls Below Consensus Expectations

• Nonfarm productivity declined in Q1 (-2.7% QoQ a.r.), -0.9% YoY.
• Unit labor costs—compensation divided by output—increased in Q1 (+6.3%, QoQ a.r.), +5.8% YoY.
• Compensation per hour rose 4.8% YoY in Q1 but was +3.4% QoQ annualized in Q1, the slowest pace since 2022Q2.

The measure of productivity (always debatable) jumped during the pandemic but is trending back to its long term pace of 1.0-1.5%. But corporate labor costs per unit of production has skyrocketed 13.4% in 3 years, twice its 2.0% longer term pace.

There is a rather close relationship between UCL and core inflation. But which one leads?

Well, corporate profit margins (pretax) have jumped 50% from their pre-pandemic level, in spite of accelerating ULC. The power of pricing power!

• A case in point:

Bank of Canada’s Macklem Warns Inflation Could Get ‘Stuck Materially Above’ Target

Bank of Canada Gov. Tiff Macklem said there is a risk that robust wage growth, elevated inflation expectations and frequent price increases from businesses could impede central bank efforts to slow inflation toward its 2% target.

Such a scenario, he said in prepared remarks Thursday to a Toronto business audience, could prompt the central bank to resume rate increases, after deciding to pause following its January decision. (…)

Mr. Macklem reiterated that the central bank believes its aggressive rate-rising campaign is beginning to bear fruit, as inflation has slowed from a peak of 8.1% in June of last year to 4.3% as of this March. The central bank expects inflation to decelerate to 3% this summer.

The road to 2% inflation is more complicated, Mr. Macklem said. At present, the central bank anticipates inflation slowing to 2% by the end of 2024. Obstacles remain, he said, citing a tight labor market that is pushing annual wages upward, in the 4% to 5% range; corporate price-setting [remember the charts above?], which has yet to return to prepandemic conditions; and elevated inflation expectations, based on the results of central-bank surveys.

“There is a risk that these adjustments will take longer or stall, and inflation will get stuck materially above the 2% target,” Mr. Macklem said. “The projected decline from 3% to 2% is both slower and more uncertain.”

He added: “If we start to see signs that inflation is likely to get stuck materially above our 2% target, we are prepared to raise rates further.”

In a question-and-answer session following his speech, Mr. Macklem said rate cuts were unlikely, given the inflation outlook. “The lesson from history is you certainly don’t want to loosen prematurely because if inflation gets stuck, it’s really hard to get it back down.”

Economic activity is slowing, Mr. Macklem added, but “is still in excess demand,” citing a 5.1% annual increase in the cost of services in March. (…)

In Canada, economists said a tentative labor deal reached this week between the Canadian government and about 120,000 employees could maintain upward pressure on wage growth. Canada agreed to a 12% wage increase over four years for workers, after a 12-day strike. The minutes of Bank of Canada rate-policy deliberations said officials “revisited their concern that the current pace of wage growth, if sustained, would not be consistent with getting inflation back to 2% without a substantial increase in productivity.”

ECB Slows Pace of Rate Increases The European Central Bank indicated it isn’t ready to pause its campaign against high inflation, diverging from the Fed.

(…) In a statement, the ECB said it would increase its key rate by a quarter percentage point, to 3.25%, a near 15-year high. It was the smallest move since the bank started raising rates last July. The bank also said it would reduce its bondholdings at a faster pace starting in July, a move that is likely to weigh further on economic growth and inflation. (…)

The shift to a slower pace of rate increases was “based on the understanding that we have more ground to cover and we are not pausing,” ECB President Christine Lagarde said at a news conference.

“We all concluded that the inflation outlook is too high and has been so for too long,” Ms. Lagarde said of Thursday’s policy meeting. Some officials advocated a larger half-point rate increase, she said. (…)

Investors responded to the decision by lowering their expectations for future ECB interest rate increases. The euro fell 0.5% to $1.1003, signaling that investors see more limited divergence between the ECB and the Fed. European government borrowing costs also declined, with the yield on the 10-year German bund down to 2.192% from 2.282% before the announcement. (…)]

Ms. Lagarde warned on Thursday that underlying price pressures remained strong and that wages were rising sharply.

Investors bet after Ms. Lagarde’s news conference that the ECB would raise rates by only another quarter point, to 3.5%, down about 0.1 points from their prediction earlier in the day, according to data from Refinitiv. They expect the Fed to reduce interest rates by about 0.8 points later this year, to about 4.2%, the data show. (…)

Tighter monetary policy already clearly visible in the credit environment in the Euro Area

• The market is anticipating approximately 180 bps of rate reductions from the Federal Reserve in the second half of this year and the first half of next year. (The Daily Shot)

Source: The Daily Shot

• Companies increasingly mention weak demand on earnings calls. (The Daily Shot)

Source: BofA Global Research

Eurozone retail sales fell more than expected in March

Retail sales in the eurozone fell by -1.2% in March, which means that retail once again contributed negatively to GDP growth in the first quarter. This adds to other weak eurozone March data, indicating that the bloc ended the first three months of the year on a weak note

Retail continues to struggle with the loss of consumer purchasing power and a shift in preference away from goods and towards services, now that the Covid-19 pandemic has ended.

The volume of sales has been on a declining trend since late 2021 and the March 2023 data are consistent with a continuation of the downward trend. Declines in March were particularly large in Germany, France and the Netherlands at -2.4%, -1.4% and -1.3% respectively, while Spain saw an increase in sales of 0.7%.

With inflation falling, wage growth picking up and unemployment remaining low, the outlook for sales should show some bottoming out in the months ahead, particularly once the catch-up demand for services weakens again.

For the second quarter, though, it looks like the correction in sales could continue as real wages are still falling in the eurozone. This disappointing March figure adds to some individual countries posting weak industrial data this morning and indicates that the first quarter ended on a weak note despite some upbeat survey data.

While it looks like the second quarter was off to a better start, it is important to keep in mind that the eurozone is starting to feel the effect of tight monetary policy and still faces high inflation. We, therefore, expect a modest bounce-back in economic activity for the current quarter.

The US regional bank crisis

John Authers:

This is not like the GFC in the sense that it doesn’t hinge on distrust in the valuations of assets on banks’ books. It isn’t that investors fear that many of their loans are toxic. Rather, the issue now concerns profits. With interest rates where they are, the logic is that banks can only hold on to their deposits, a vital source of cheap funding, by offering rates to customers that obliterate their profits.

This doesn’t directly threaten a bank, in the way that the bad loans did in 2008. But if a bank looks less likely to make profits, that will mean a lower share price, which in turn will make it harder for it to raise equity funding, and not just debt finance. Allowing consolidation in the banking sector would be painful for regulators, and for consumers who would likely get worse service and value for money from monopolistic monoliths. But it’s getting harder to resist.

Why does it matter? First, banks that are in trouble will tighten credit, and companies are now very worried that this is happening and could worsen. Remarkably, Bloomberg colleagues show that credit tightening has come up more often in earnings calls over the last few weeks even than during the horrors of 2008:

Second, it could force changes in both monetary and fiscal policy. Yields have fallen again this week on the belief that the bank crisis will compel the Fed to ease monetary policy. Possibly even more important, the most obvious solution could involve a big fiscal outlay. Insuring all deposits, advocated by many as the measure that could end the crisis, would be mighty costly, even on an interim basis. To do it on a permanent basis would require legislation, which in turn would require America’s polarized politicians to agree on something.

This is very different in concept from what happened in 2008. And as the problem is one of liquidity, or banks’ ability to raise money in a hurry, rather than solvency, it should be far less serious. Bank crises do happen from time to time. That doesn’t mean that this crisis can be ignored, or that it won’t be painful.

• A Debt Deal Could Help Solve the Country’s Inflation Problem Spending cuts could prompt the Fed to cut interest rates sooner, easing some of the pressure on banks.

The Federal Reserve has a problem with stubborn inflation and fragile banks. Congress and President Biden have a problem with a looming deadline to raise the debt ceiling.

There might be a way to address all these problems at once.

Here’s why. Banks are in trouble because of rising interest rates. Rates have climbed because inflation is high. And inflation is too high because demand is hot. One way to cool demand would be for the federal government to cut spending—which happens to be what Republicans, who control the House, are demanding in return for raising the federal government’s $31.4 trillion borrowing limit. (…)

On the substance, Mr. Biden doesn’t want to reduce spending. His team looks with regret back at 2011, when President Obama and then-Vice President Biden acceded to Republican demands for cuts in return for raising the debt ceiling. Besides setting a bad precedent, that austerity took a toll on an economy struggling to recover from the financial crisis. (…)

To be sure, fiscal policy is no longer pushing inflation higher; it is a drag on economic growth, according to the Hutchins Center on Fiscal and Monetary Policy. However, that is because of expiring temporary measures rather than concrete steps to reduce spending or raise taxes.

In fact, the combined effect of bills Mr. Biden has signed on infrastructure, veterans benefits, semiconductors and energy subsidies is to raise, not lower, budget deficits. Even his so-called Inflation Reduction Act might end up reducing the deficit by far less than advertised, if at all. The Congressional Budget Office projects federal spending will equal 23.7% of gross domestic product this fiscal year, well above the prepandemic 21% in 2019.

The CBO says the Republican debt-ceiling bill would reduce discretionary federal spending by $129 billion in the fiscal year ended Sept. 30, 2024, relative to current law. (Discretionary spending must be reauthorized regularly, unlike mandatory programs such as Social Security and Medicare.) That would lower federal spending to 23.1% of GDP, enough to knock about half a percentage point off economic growth. Lower growth is normally a bad thing, but not when demand is too hot. (…

The Fed will likely solve its inflation problem long before Congress solves its debt problem.

Dam! No Water, No Electricity, No Aluminum

Bloomberg’s David Fickling:

(…) Yunnan province, which contains the headwaters of the Yangtze River that feeds many of the vast dams China has constructed over the past few decades, has been gripped by severe drought in recent months, according to the official China Daily. The provincial capital of Kunming has had the driest start to the year since 1985, with rainfall at about 10% of typical levels, the paper reported. Conditions are even worse than they were last year, when the nation experienced its second-driest summer on record. (…)

Economic planners in Yunnan have told local aluminum smelters, one of the most power-hungry sectors of the economy, to cap output and purchase more coal and coal-fired power, the South China Morning Post reported.

Electricity production is already suffering. Nationwide hydro generation in the first quarter of the year came to 204 terawatt-hours, a drop of nearly 8% from the same period last year. That’s particularly worrying because China has more dams now than ever. In the first quarter, they were producing power at no more than about 26% of full capacity, the worst performance since 2014. Water levels at the Three Gorges Dam, the world’s biggest power station, peaked about 15 meters below their normal levels last winter. (…)

China isn’t alone. India has a similar mix of hydroelectricity and coal on the grid, combined with a huge population and blistering hot months. Summer sales of air conditioners will be as much as 20% higher this year, Business Insider India quoted a local appliance manufacturers association as saying in March. Parts of Southeast Asia, facing parched conditions over coming months, are in the same boat.

THERE’S LOTS… AND LOTS

Axios posts this chart and says “New vehicle inventories are jumping from the pandemic-era’s historic lows — and it could lead automakers to ease off the gas”.

New for dealer lots… “vehicles”

Data: U.S. Bureau of Economic Analysis; Chart: Axios Visuals

Really? That’s lots in lots!

Yes, but no. Here’s a longer term chart to put current inventories in the proper perspective.

    DoorDash Revenue Beats Estimates on Strong Demand For Deliveries Non-restaurant categories like alcohol are outpacing food

Fed Raises Rates, Signals Potential Pause

(…) “People did talk about pausing, but not so much at this meeting,” Fed Chair Jerome Powell said at a news conference. “We feel like we’re getting closer or maybe even there.” (…)

“I think that policy is tight,” Mr. Powell said. But he added, “we are prepared to do more if greater monetary policy restraint is warranted.”

Until now, officials have been looking for clear signs of a slowdown to justify ending rate increases. But Mr. Powell indicated that calculation could shift now, and officials would need to see signs of stronger-than-expected growth, hiring and inflation to continue raising rates. The Fed’s next meeting is June 13-14. (…)

“We have a broad understanding of monetary policy. Credit tightening is a different thing,” Mr. Powell said. (…)

Officials dropped a key phrase from their previous policy statement, in March, that said they anticipated some additional increases might be appropriate, and they replaced it with new language saying they would carefully monitor the economy and the effects of their rapid increases over the past year.

“That’s a meaningful change, that we’re no longer saying that we ‘anticipate’” additional increases, said Mr. Powell. (…)

Mr. Powell said conditions in the banking sector had broadly improved since March. “There were three large banks, really, from the very beginning that were at the heart of the stress that we saw,” he said. “Those have now all been resolved and all the depositors have been protected.”

Officials have signaled growing divergence over the policy outlook recently, with some urging greater caution about raising rates given the lagged effects of the banking stress and the Fed’s earlier increases. Others are more worried about stopping prematurely only to see economic activity and inflation remain strong. (…)

Mr. Powell said he didn’t share the staff’s view, but he didn’t dismiss the prospect of a recession. “It’s possible that we will have—what I hope would be—a mild recession,” he said. (…)

Mr. Powell pushed back against expectations of rate cuts this year, but he acknowledged that investors expecting inflation to fall quickly could take that view. “We on the committee have a view that inflation is going to come down not so quickly. In that world, if that forecast is broadly right, it would not be appropriate to cut rates, and we won’t cut rates,” he said.

• The decision was unanimous. Powell said support for the 25 basis-point hike was “very strong.”
• Powell’s Word Soup Leaves Fed Watchers Hungry for More The chairman made it clear that today’s rate hike means we can expect a pause. Or a cut. Or another hike.
• For many months, the central bank has dug itself and the economy into a hole “because of earlier failures in analysis, forecasts, actions and communication,” Mohamed El-Erian writes, arguing that the Fed needs to shift the way it thinks about rates entirely. (Bloomberg)
• Gundlach, DoubleLine Capital’s co-founder, cited the cumulative rate increases by the Fed since March 2022 and credit contraction for reasons he’s “turning more bearish at this point in time.” The Fed likely won’t lift interest rates again following its latest increase, he said. “Recessionary odds are pretty darn high right now.” (Bloomberg)

• Nearly Half of Americans Worry Their Bank Deposits Aren’t Safe Levels of concern are as high or higher than they were during the 2008 financial crisis.

A Gallup poll released Wednesday shows 48% of Americans are very or moderately worried about their money following the worst spate of bank failures in 15 years. Only 20% say they’re not worried at all. (…)

• PacWest explores potential sale after shares plummet 50% California lender is latest to seek financial lifeline amid worst industry crisis since 2008
• Canadian lender TD calls off $13.4 bln deal to buy First Horizon Bank

SERVICES PMIs

USA: Output growth quickens on stronger demand conditions, butprice hikes intensify in April

The US service sector upturn strengthened in April, according to the latest PMI™ data from S&P Global, as output, new orders and employment growth all accelerated. The rate of expansion in new orders was the sharpest for almost a year. Stronger demand conditions put pressure on capacity as backlogs of work rose again, spurring a quicker increase in employment. The rate of job creation was the fastest since last August. Firms were also more upbeat regarding the year-ahead outlook for output.

Concurrently, inflationary pressures regained momentum. Service sector input costs rose at the steepest rate for three months, while the increase in selling prices quickened to the fastest since August 2022.

The seasonally adjusted final S&P Global US Services PMI Business Activity Index registered 53.6 at the start of the second quarter, up from 52.6 in March and broadly in line with the earlier released ‘flash’ estimate of 53.7. The latest data signalled the third successive monthly increase in output at service providers, with the rate of growth accelerating to the fastest for a year. Panellists stated that output increased amid greater customer confidence and another increase in new business.

Supporting the expansion in output was a second successive monthly increase in new orders. The rate of growth was only modest overall, but quickened to the sharpest since May 2022. Where a rise in new business was reported, firms linked this to greater customer referrals, stronger demand conditions and successful marketing and sales initiatives.

The upturn in demand was largely confined to the domestic market, however, as new export orders for services fell for the eleventh month running in April. Challenging economic conditions in key export markets resulted in customer hesitancy in placing orders following rises in average prices charged, according to survey respondents. That said, the pace of export decline was only marginal and the second-slowest in the near year-long sequence of contraction.

Stronger overall demand conditions brought with it the reignition of inflationary pressures in April. Average cost burdens rose at a marked pace that was the fastest since January and historically elevated. Higher business expenses were reportedly due to hikes in supplier prices and greater salary costs.

Selling prices at service providers increased at a steeper rate at the start of the second quarter, reflecting a faster uptick in cost burdens as well as strengthening demand, the latter allowing the pass-through of higher input prices to customers. The pace of charge inflation accelerated for a third successive month to the sharpest since August 2022.

In line with greater new business, firms expanded their workforce numbers during April. Efforts to relieve pressure on capacity drove job creation, as the rate of employment growth reached the strongest since last August.

Nonetheless, backlogs of work rose again. Although the rate of accumulation softened, it was sharper than the series average and the second-fastest since May 2022.

Business expectations among service providers improved in April, as firms were more upbeat regarding the outlook for output over the coming 12 months. The degree of optimism was the second-highest in almost a year, despite being slightly weaker than the series average. Confidence was linked to investment in sales and marketing activity as a means to increase sales.

The ISM:

Economic activity in the services sector expanded in April for the fourth consecutive month as the Services PMI^® registered 51.9 percent, say the nation’s purchasing and supply executives in the latest Services ISM Report On Business. (…)

The New Orders Index expanded in April for the fourth consecutive month after contracting in December for the first time since May 2020; the figure of 56.1 percent is 3.9 percentage points higher than the March reading of 52.2 percent.

• “Retail environment is lower year over year, but trends are stable year to date. Inventory levels are coming more in line to match the new lower demand trends.” [Retail Trade]

BTW: ADP Employment Above Expectations in April

According to the ADP report, private sector employment rose by 296k in April, 146k above consensus and consistent with evidence from other Big Data sources that the underlying pace of hiring remained solid or strong in April. We also continue to believe the BLS seasonal factors represent a tailwind for Friday’s payroll numbers. We boosted our nonfarm payroll forecast by 25k to +250k (mom sa). (GS)

Euro area economy grows at strongest pace since May 2022 as service sector rebound gathers momentum

The HCOB Eurozone Services PMI Business Activity Index recorded 56.2 in April, up from 55.0 in March to signal the strongest expansion in service sector activity in a year. The latest upturn was the fourth in as many months and well above that seen on average across the survey history (since 1998).

Higher demand for eurozone services boosted activity levels during April. New order intakes rose at a similarly-strong rate to that of output. The increase in new business was likewise the strongest in precisely one year. Backlogs of work also rose, marking a third successive pick-up in outstanding business.

Companies stepped up their efforts to boost capacity, with employment levels rising at the sharpest pace since May 2022.

Meanwhile, price pressures subsided during April, although rates of inflation for both output charges and input costs remained well above long-run trends. For example, the latest rise in selling prices, albeit the weakest in 14 months, was greater than anything seen in the survey history prior to February 2022.

Finally, service sector business confidence slipped to a three-month low in April.

China manufacturing PMI: Business conditions moderate slightly in April

Latest PMI data pointed to a marginal deterioration in overall business conditions across China’s manufacturing sector during April. Firms signalled only a fractional rise in output amid a renewed drop in overall new business. Subdued demand conditions contributed to a further fall in overall employment in the sector, but helped to ease supply chain pressures, with lead times for inputs improving slightly. At the same time, average input costs declined at the quickest rate since January 2016, supporting a steeper reduction in selling prices as firms looked to attract new business.

When assessing the 12-month outlook for output, firms were hopeful that customer demand will pick up and drive production volumes higher. Notably, the degree of optimism was the second-strongest in two years.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) slipped from the neutral level of 50.0 in March to 49.5 in April. This signalled the first deterioration in the health of the manufacturing sector for three months, albeit one that was marginal overall.

Softer demand conditions were a key factor weighing on the performance of the sector, with total new orders falling slightly for the first time in three months. A number of firms indicated that sluggish market conditions and weaker-than-expected customer spending had dampened sales. Underlying data indicated that the fall was largely driven by softer domestic demand, as new export work was broadly stable.

Production growth meanwhile slowed for the second straight month in April, with output rising fractionally overall. Firms that recorded higher output often linked this to the return to more normal business operations.

In line with the trend seen for output, purchasing activity increased at the softest rate for three months in the latest survey period. Inventories of both pre- and post-production items were meanwhile little-changed compared to the previous month. A number of firms expressed a reluctance to stock build due to the softer demand environment.

Suppliers’ delivery times improved for the third time in as many months in April. Companies often noted that vendors were less busy or that they had requested quicker lead times. That said, the rate at which delivery times shortened was only marginal.

Muted client demand led firms to cut their staffing levels again in April, and at the quickest pace in three months. This was often through the non-replacement of voluntary leavers, though there were also reports of firms trimming headcounts to cut costs. Backlogs of work meanwhile expanded for the fourth month in a row, albeit at a modest pace.

Manufacturers registered the first fall in average input costs for seven months in April, with the rate of decline the quickest recorded since the start of 2016. Lower prices for some raw materials and fuel were linked to the renewed drop in expenses. Cost savings were often passed on to customers in the form of lower selling prices, which were cut at the fastest rate since December 2015, as firms sought to attract new business.

Optimism towards the 12-month outlook for output improved, as firms were hopeful that customer spending would pick up in the months ahead. New product releases, supportive state policies and investment in new equipment were also expected to drive growth.

EARNINGS WATCH

From John Authers:

(…) With around 74% of S&P 500 companies having reported as of Wednesday’s close, top-line growth has been stronger than forecast while margins have tumbled slightly less than feared, Bloomberg Intelligence found. Even if US large-cap earnings are still in recession, the downdraft is on track to turn out just half as bad, analysts Gina Martin Adams and Wendy Soong wrote. Barring a few big swings, price performance has been benign compared to previous seasons. Note, however, that for all the positive surprises, earnings are down year-on-year:

All sectors, save for utilities, are beating forecasts, led by discretionary and industrials, and 80% of reports topped EPS estimates vs. a long-term average of 65% (from 1992) and five-year pre-pandemic average of 73%. Still, the index is pacing a 4.5% decline in EPS year over year, with seven of 11 sectors on pace for a decrease. Materials and health care are suffering the most.

Investors are in the thick of the large-cap earnings season, with roughly 24% of the index market cap, headlined by Apple Inc., Berkshire Hathaway Inc. and Pfizer Inc., posting results this week. Small-caps will have their biggest week with as much as 40% of Russell 2000 Index market cap expected to report — utilities being the largest sector followed by health care.

The proportion of companies beating consensus estimates rose sharply to 81% (from 72% last quarter), the highest since the fourth quarter of 2021 when brokers were still struggling to get their arms around the massive post-Covid rebound, and well above the historical average of 74%, according to Binky Chadha of Deutsche Bank AG. A jump of this magnitude has only previously occurred when coming out of large downturns, including the GFC and the pandemic:

Source: Deutsche Bank Research

The most significant surprise lay in profit margins. Over time, they have been highly cyclical and mean-reverting, and they decline as the economy slows. Following historically high margins toward the end of 2021, the widespread expectation was that they would fall significantly. Instead, they are on course to tick up a little and remain historically high:

Ominously for central bankers, this shows that companies still have the power to raise prices. Beyond that, the overall 6.9% jump in the aggregate beat of earnings forecasts in the latest quarter is noteworthy. Beats have been on a steady decline since the first quarter of 2021 after they hit a 20% record, Chadha said. For context, beats in the fourth quarter of 2022 were just 0.9% in the aggregate, well below the historical average of 4.9%. As it stands now, the beat by the median company is tracking 5%, well above the typical 3.5% and at the top end of its non-recession range:

Source: Deutsche Bank Research

(…) Bank of America Corp. analyst Savita Subramanian points out that in earnings calls executives have been appealing to the zeitgeist, talking about productivity, repatriating jobs from China, and name-dropping artificial intelligence whenever possible. “Productivity gains could be the next multi-year bull case for margins and multiples.” For proof, this quarter saw a 27% jump in year-over-year mentions for the word “efficiency.” Mentions of “artificial intelligence” skyrocketed 85% (as did the word “re-shoring.”)

Source: Bank of America

But they’ve also suggested that the economy is in bad shape, by complaining about demand:

Now to put this in cruel context. Earnings are still down for the second quarter in a row. They’ve been such a market positive because prior expectations were in the cellar. Vincent Deluard, director of global macro strategy at StoneX Financial Inc., highlights four “ominous trends” that have emerged this season:

Russell 3,000 index companies’ earnings fell 2.3%, their second consecutive quarterly decline;

Top line surprises were rare and their magnitude kept falling — the big ones have been about margins and pricing power;

The market’s muted reaction to positive surprises may suggest that companies “used accounting trick,” or issued negative guidance;

The same analysts who expect earnings growth to accelerate next quarter also believe the Fed will cut rates by almost 100 basis points.

He wrote: “Can profits jump in the midst of a recession? As shown in the chart below, the two lines of profits and GDP growth were almost indistinguishable in eight of the past nine recessions. Earnings bottomed before economic growth only once, in the shallow recession which accompanied the first Iraq war, but profits dipped back during the ensuing recovery. The historical odds are not with bullish EPS forecasts.” (…)

Source: StoneX Financial