Are We in an Earnings Recession?

Jan 5, 2023 | Bubble Monitor, No Bull Economics

Recessions are typically defined by macroeconomic metrics like GDP & unemployment, data that relates to consumers. However, little attention has been dedicated to analyzing whether we are in a corporate profit recession. Fortunately, Corporate America is in pretty good shape – at least through 3Q22.  

According to government data, corporate profit growth (for small businesses as well as large ones) has been trending down through 3Q22 when it increased a still respectable +2.3% y/y. This suggests that we are not currently in an earnings recession as companies still are exhibiting pricing power sufficient to drive profit growth, at least through the third quarter. This point is reinforced by a low unemployment rate which indicates that companies are not currently required to cut costs to keep from losses.

Corporate Profits Graph
Corporate Profits Graph

Using the S&P 500 as a proxy, things look even better for larger companies. Here we see a very respectable +8% y/y median revenue growth during 3Q22 for companies in this index with only 23% of the total reporting negative results. While +5% y/y median EBITDA growth was only slightly more muted despite substantial inflationary input cost pressures, it is notable that 40% of the S&P 500 companies reported a negative EBITDA y/y change during the quarter. Having said that, a 24% median EBITDA margin during the quarter is very impressive with only 1.5% of the universe reporting negative results. Fortunately, Corporate America is in pretty good shape – once again, at least through 3Q22.   

      

S&P 3Q Results Graph
S&P 3Q Results Graph
Marketing NFS Graphic Updated
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