November 29, 2019

Low earnings growth: Is it all that bad?

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In Short

US and EA momentum in capacity utilization deteriorated together with firms’ margins, ROE and NIPA profits. More recently, flash estimates of Q3 US unit-labor costs growth increased visibly to 3.1% yoy, one of the highest since 2008.
Low earnings growth: Is it all that bad?
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Highlights:

  • Global corporate earnings have been hit by the US-China trade war, Brexit fears and the car sector slump – all weighing on a maturing economic cycle. The 2019 earnings forecast decreased by 12% in one year, showing no growth vs 2018.
  • US and EA momentum in capacity utilization deteriorated together with firms’ margins, ROE and NIPA profits. More recently, flash estimates of Q3 US unit-labor costs growth increased visibly to 3.1% yoy, one of the highest since 2008.
  • While falling earnings were justified by worsening fundamentals, a too bearish consensus for Q3 resulted in positive surprises, near recent history. Furthermore, fresh confidence indicators are providing tentative signs of cycle stabilization.
  • While we expect a mild earnings recovery in 2020, our forecasts remain weak and below consensus by 6-9 pp for the US, EA and EMs. In our projections, the low earnings growth environment will persist over the next 5 years.
  • While 2020 consensus earnings remain at risk, we maintain a constructive stance on equities due to dovish global central banks, high equity risk premia, decreasing geopolitical risks, defensive positioning and signs of macro stabilization.

Read the full publication below.

LOW EARNINGS GROWTH: IS IT ALL THAT BAD?

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