I had a glance at this years Fortune 500 the other dayand, wow, what a brutal story the bare numbers tell.
The profits of American corporations suffered the largest two-year drop in profits in the 55-year history of the list last year.
From an all-time record of $785 billion in 2006, American corporate profits plunged to just $98.9 billion last year. That is, (according to the lead-in article to the list), for every dollar made by American companies in 2006 they made just 13 cents last year.
Talk about a haircut. The financial sector, which had been generating the bulk of the profits, took the biggest dive. But also suffering were any companies in the consumer cyclical sector.
Big products/services that consumers could put off they did. Entertainment, vacations, gambling, and, of course, cars, were all delayed and those sectors suffered (the auto sector most severely).
Interestingly enough, health care and tech held in there. Health care’s resilience is obvious. Thats not something you can really put off. Tech also hung in there as the once high-growth companies that brought us networking and computer services increasingly become more like utilities, providing a necessary, steady service (now seemingly resistant to recession) .
The lead-in article on the list mentioned that the corporate profit boom of 2006 and 2007 is likely never going to be repeated. One of the key reasons profits were rising was that the money being used was coming out of home equity and related lines of credit. With the credit bubble deflating and home prices dropping, the profit bubble is done too.
But on a lighter note the article goes on to note that part of the profit slaughter came as a result of companies slashing prices on inventory in a desperate measure to move some of that inventory out. Now that things are firming up a bit and we see and end to initial interuption of spending, we might also expect a real jump in earnings in the quarters ahead. Earnings tend to bounce back in a big way once they stop falling, and considering they were so low, we may have some nice surprises through the rest of this year. Lets hope thats the case.