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
What’s the latest on the extra COVID-19 unemployment benefits?
As of now, those $600-a-week payments will stop at the end of July. For many, unemployment payments have been a lifeline, but one that is about to end, if nothing changes. The debate over whether or not to extend these benefits continues among lawmakers.
With a spike in the number of COVID-19 cases, are restaurants and bars shutting back down?
The latest jobs report shows that 4.8 million Americans went back to work in June. More than 30% of those job gains were from bars and restaurants. But those industries are in trouble again. For example, because of the steep rise in COVID-19 cases in Texas, Gov. Greg Abbott, a Republican, increased restrictions on restaurant capacities and closed bars. It’s created a logistical nightmare.
Which businesses got Paycheck Protection Program loans?
The numbers are in — well, at least in part. The federal government has released the names of companies that received loans of $150,000 or more through the Paycheck Protection Program.
Some of the companies people are surprised got loans include Kanye West’s fashion line, Yeezy, TGI Fridays and P.F. Chang’s. The companies you might not recognize, particularly some smaller businesses, were able to hire back staff or partially reopen thanks to the loans.
You can find answers to more questions on unemployment benefits and COVID-19 here.
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