New BEA Report Shows Recession Zapping Profits
Chasm Big as Grand Canyon Opens on How Soon the Recovery
Aug 14, 2009
They fear the economic contraction that began December 2007 will become a vengeful Son of Frankenstein, better known as the Great Depression of the 1930s.
The current downturn is now in its 20th month; and, while showing signs of abating, it is emitting enough gasps and screeches to keep the nation - if not the world - guessing about the long-term outcome.
Economic Expansion of 1990s Was Longest Since WWII
When the American business expansion topped out in December 2007, and the recession commenced, the economy had grown for 73 consecutive months. While that was one of the strongest expansions since WWII, it is only in fifth place. The expansion during the 1990s was the champion, lasting 120 months, according to the National Bureau of Economic Research NBER.
The combination of those two expansions represents almost 16 years of near-continuous growth. Consumer credit juiced the spending of Americans, during those times. The Federal Reserve Bank reports in both 2002 and 2003, consumer loans- including credit card borrowing- jumped from 5.36% of personal disposable income to 6.84%.
Corporate Profits Not a Pretty Picture - Wholesaler Performance Best
The Bureau of Economic Analysis (BEA) recently released corporate profits for the first quarter of 2009. Only three industrial sectors finished the five quarters with higher profits. No Manufacturers had profit gains.
Best results were Wholesalers' profits of $94.0 billion, which showed a 23.7% increase. They sell to Retailers and their activity usually leads retail activity, as store inventories are depleted and restocked. Retailers' profits dropped from $102.4 billion to $83.1 billion, a decrement of 18.8 percent. Evidently, their slowdown has not backed up to Wholesalers yet.
Largest stock capitalizations among Wholesaler stocks, with stock symbols in parentheses, are:
- SIMS METAL MGMT LTD (SMS)
- VINA CONCHA Y TORO (VCO)
- United Stationers Inc. (USTR)
- Central Garden & Pet Company([CENT)
- School Specialty, Inc. (SCHS)
Foods, Beverages and Food Were Next
Corporate profits for Foods, Beverages and Tobacco products climbed from $29.8 to $34.9 billion, an increment of 16.6 percent. It was a performance suggesting that consumers might be having their last fling.
Food companies having the largest market capitalizations are:
- KRAFT FOODS INC (KFT)
- HEINZ H J CO (HNZ)
- Lancaster Colony Corporation (LANC)
- AFC Enterprises, Inc. AFCE]
- AMERICAN HOME FOOD (AHFP.OB)
Utilities Manage 4.7% Increase
Net profits of Utilities edged upward, from $51.2 to $53.6 billion, a 4.7% gain in the five quarters. The largest diversified Utilities, ranked by market caps are listed below:
- SOUTHERN CO (SO)
- F P L GROUP INC (FPL)
- DOMINION RES NEW (D)
- DUKE ENERGY CP HL CO (DUK)
- CENTRAIS ELC BRAS SP (EBR)
Automobiles and Financial Industries Are Special Situations
There are two special cases in the perilous passage of the American economy through the shoals of recession: (1) the reformed and retooling Automobile sector, including Bodies, Trailers and Parts; and (2) the federally-rescued Goliaths and rapacious financial industries, led by executives who thought bonuses were rewards for nearly wrecking the financial system.
Dismal news of the Big Three auto makers- General Motors, Ford and Chrysler- has dominated their group since the recession began. Chrysler filed a government-mandated bankruptcy April 30, 2009 and GM emerged from a government-ordered bankruptcy on July 10. The future is uncertain for them as well as Ford, so far free of a bailout and government intervention.
Could New "Big Three" Be Forming Among Auto Makers ?
Largest market caps among major auto makers - perhaps signaling the forming of a new Big Three- with bankruptcy courts wringing out the assets of General Motors and Chrysler, are:
- TOYOTA MTR CP ADS (TM)
- HONDA MOTOR CO ADR(HMC)
- DAIMLER AG (DAI)
- FORD MOTOR CO (F)
- TATA MOTORS INC (TTM)
Bank Profits Fall Less Than Insurance
From the fourth quarter of 2007 to the first quarter of 2009, Bank profits dropped from $38.2 billion to $28.8 billion, or 24.6%; other Financial service vendors, like insurance companies and brokerages, slid from $346 billion to $225.1 billion, or 35.0%.
Largest market caps and stock symbols among Banks are:
- BK OF AMERICA CP (bac)
- SUNTRUST BANKS (sti)
- KEYCORP (key)
- P N C FIN SVCS GR (pnc)
- WELLS FARGO & CO NEW (wfc)
The giants among Life Insurance stock market caps are:
- AXA ADS (AXA)
- CHINA LIFE INS CO (LFC)
- PRUDENTIAL PLC SC (PUK)
- MANULIFE FIN CORP (MFC)
- METLIFE INC (MET)
Divergent Opinions on What Happens Next
Some FED officials believe the recession will end this year, with inflation then becoming the problem. Others disagree, and financier George Soros says the recession could last forever. The billionaire was talking about never returning to the good old days, in an article by Joe Weisenthal, in Business Insider's "Clusterstock" zine of March 29.
How's that for a difference of opinion?
The writer is a Chartered Financial Analyst (CFA).
Sources: Securities information from Yahoo! Finance.
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