A new report has some worrying news for the U.S. economy.
Is trouble brewing on the horizon for the U.S. economy — and so soon after digging its way out of a brutal recession?
The economy looked good in the fourth quarter, relatively speaking, but corporate profits plunged by 11.5 percent, the biggest drop since the end of 2008 at the height of the financial crisis — indicating that worries of falling back into recession persist, according to a Bloomberg report.
Growth was revised to a 1.4 percent annualized pace, up from 1 percent, the previous estimate, indicating that consumer spending has been rising more than previously thought — definitely a good sign.
But with pretax earnings dropping 3.1 percent in 2015, there’s a lot of concern out there that trouble might be ahead, as historically, drops in earnings result in cutbacks in hiring and investment, which can lead to a recession.
However, it’s possible that other factors are resulting in the poor earnings, including a $20.8 billion penalty payment by BP related to the Gulf of Mexico oil spill in 2010. Eliminating that woudl adjust the earnings drop to 7.6 percent — weak, but not nearly as bad as before.
Also, diving profits in petroleum and coal are driving much of the downward trend.
Stated the Federal Reserve back on March 16: “Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.”