Monday, June 11, 2012

Manufacturing Omen? Profits and Profitability Flat

The Lehmann Letter (SM)
  
This letter believes that profits and profit margins (profitability) remain the stock market's greatest challenge for further appreciation. The June 7 edition reported strong growth for profits and a high plateau for profit margins at all corporations in the first quarter. The challenge: Will profits continue growing and margins remain high?

This morning the Census Bureau reported FLAT first-quarter manufacturers' profits and profit margins:


Is this an omen for all corporations and the stock market? Have profits and profitability reached a ceiling? Take a look at the charts to put the following data in historical perspective.

Manufacturers’ Profits

(Click on chart to enlarge)



(Recessions shaded)

Manufacturers’ Profit Margins

(Click on chart to enlarge)




(Recessions shaded)

Profits hovered at about $150 billion throughout 2011 and this morning's report places them at $148.0 billion in this year's first quarter. Profit margins were 8.7 cents per dollar of sales in the first quarter, also about where they were in 2011. Sales continue to grow, but profits and profitability do not.

That's worth repeating: Sales revenue grew but total profits and profit margins did not. Let's hope manufacturers break out of this range and that manufacturers' latest report is not an omen for all business.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann


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