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
Are states ready to roll out COVID-19 vaccines?
Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.
How is the service industry dealing with the return of coronavirus restrictions?
Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.
How are hospitals handling the nationwide surge in COVID-19 cases?
As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.
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