Monday, March 30, 2009

Earnings Collapse

The Lehmann Letter ©

The Commerce Department and the Census Bureau recently reported fourth-quarter after-tax profits for all-corporations and manufacturers.

Begin with the chart below. You can see that after-tax earnings for all corporations recently rose to slightly more than $1.4 trillion at an annual rate. They were $1.3 trillion in the third quarter of 2008 before dropping to $931.2 billion in the fourth quarter. Connect those dots and you can see how steeply profits have fallen. Another drop like that and profits will be back to where they were during the 2001 recession.

All Corporations After-tax Profits

(Click on chart to enlarge)

Recessions shaded

Manufacturers are in even worse shape. The following chart shows that their earnings rose to $120 billion recently. They were $120.1 billion in 2008’s third quarter. In 2008’s last quarter manufacturers suffered $48.7 billion loss. That’s almost off the bottom of the chart.

Manufacturers’ After-tax Profits

(Click on chart to enlarge)

Recessions shaded

Has the stock market fully anticipated these earnings declines? Does the current P/E reflect them? If not, and especially if earnings fall further, the stock market will have difficulty rising above its recent lows.

(The charts were taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2009 Michael B. Lehmann

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