U.S. companies might not see profit growth at all this year
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Goldman Sachs says there won’t be any earnings growth for S&P 500 companies this year, as the impacts of COVID-19 spread beyond China and to companies around the world.
To be clear, that doesn’t mean companies won’t be making money this year. It’s that they’ll be making the same profits they did last year, on average.
Why do we care about profit growth? So what if companies are only making as much money as they did last year? According to Gus Faucher, chief economist at PNC, growth is really important.
“If we don’t see increases in profitability, then we don’t see expansion efforts,” Faucher said. “So we don’t see businesses building new facilities, we don’t see businesses hiring more workers. We wouldn’t see rising wages.”
But if corporate profits are the same this year because of the COVID-19 outbreak, that’s not necessarily a huge problem.
“To be honest, one year of flat earnings growth doesn’t matter a whole lot,” said Scott Yonker, associate professor of finance at Cornell.
One year can be a blip. It doesn’t necessarily mean the U.S. is headed for a recession. Profits were basically flat in 2012, and the economy still expanded. Also, flat isn’t so bad. Yonker said you need to worry when profits are dropping — by a lot.
“It’s when you have big negative earnings growth that things matter,” Yonker said. “In ’07, ’08, that was the financial crisis. We saw earnings decline by 40%.”
And remember that this Goldman Sachs estimate is an average.
“The effects are going to be unevenly distributed across the economy,” Faucher said. Some companies’ profits might fall, in industries like travel and retail and energy, and some might go up.
COVID-19 Economy FAQs
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
Give me a snapshot of the labor market in the U.S.
U.S. job openings in February increased more than expected, according to the Labor Department. Also, the economy added over 900,000 jobs in March. For all of the good jobs news recently, there are still nearly 10 million people who are out of work, and more than 4 million of them have been unemployed for six months or longer. “So we still have a very long way to go until we get a full recovery,” said Elise Gould with the Economic Policy Institute. She said the industries that have the furthest to go are the ones you’d expect: “leisure and hospitality, accommodations, food services, restaurants” and the public sector, especially in education.
What do I need to know about tax season this year?
Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.
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