It should come as little surprise that corporate profits in 2019 are likely to grow at a much slower pace than the incredible 23% estimated to have been achieved in 2018. The consensus estimated growth rate for 2019 currently stands at 7.2%—a marked deceleration, but nevertheless still solid. One can only imagine how much worse the recent market turbulence would have been had that estimate been negative. The estimated 7.2% growth for 2019 is, nevertheless, still tangibly lower than the historical median expected growth rate at the start of each year for the last 17 years, which has been around 11%. Typically, that estimate is then worked down over the course of the year to a median increase of around 7%, or a decline of roughly 4 percentage points (chart 1). If we look back at the earnings picture a little further, according to Robert Shiller’s data on S&P 500 earnings from 1871, the median historical annual growth rate in earnings from then to now has been 5.7%, or 3.5% in real terms after adjusting for inflation. In this week’s Economics Weekly, we look at some of the factors driving corporate earnings and profit margins this year from a top-down macro perspective, as well as some of the factors that might impact current trends over the longer term.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.