Stock Market Briefing: NIPA vs. S&P Profits December 13, 217 Dr. Edward Yardeni 16-972-7683 eyardeni@ Debbie Johnson 48-664-1333 djohnson@ Please visit our sites at www. blog. thinking outside the box
Table Of Contents Table Of Contents Profits 1-2 Profits (NIPA) 3-8 Profits (NIPA vs. S&P) 9 Retained Earnings & Dividends 1 Cash Flow 11 Profit Margin 12-13 December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
637 67 497 427 37 287 Figure 1. Profits NOMINAL GNP & AFTER-TAX CORPORATE PROFITS (196=1, ratio scale) 637 67 497 427 37 287 217 217 147 147 77 77 7% Growth Path* Nominal GNP After-Tax Corporate Profits Reported to IRS From Current Production** 7 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 7 * Compounded monthly to yield 7% annually. ** Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Source: Bureau of Economic Analysis. 183 13 123 Figure 2. S&P EARNINGS PER SHARE (dollars, ratio scale) Nov 183 13 123 93 7% 93 63 33 S&P Earnings Per Share* Reported (4-quarter sum) Operating** (4-quarter sum) Forward*** % 63 33 3 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 3 * Growth paths are compounded monthly to yield % and 7% annually. ** Excludes write-offs. *** S&P 12-month forward consensus expected operating earnings per share. Time-weighted average of consensus earnings estimates for current and next year. Source: Standard & Poor s and Thomson Reuters I/B/E/S. Page 1 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
Profits 637 67 497 427 37 Figure 3. NOMINAL GDP & AFTER-TAX CORPORATE PROFITS (196=1, ratio scale) 637 67 497 427 37 287 287 217 217 147 147 77 77 7% Growth Path* After-Tax Corporate Profits Reported to IRS From Current Production** 7 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 7 * Compounded monthly to yield 7% annually. ** Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Source: Bureau of Economic Analysis. 22 19 16 13 1 7 Figure 4. S&P FORWARD EARNINGS* & 7% Growth Trend (ratio scale) 12/7 S&P Forward Earnings (14.4) 7% Trend** 22 19 16 13 1 7 4 4 1 79 8 81 82 83 84 8 86 87 88 89 9 91 92 93 94 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 19 2 1 * 2-week forward consensus expected S&P operating earnings per share. Monthly through April 1994, then weekly. ** Compounded monthly to yield 7% annually. Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Thomson Reuters I/B/E/S. Page 2 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
281 241 21 161 121 Figure. Profits (NIPA) CORPORATE PROFITS FROM CURRENT PRODUCTION* (billion dollars, saar, ratio scale) 281 241 21 161 121 81 81 41 Total Profits Pre-Tax After-Tax 41 1 48 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 1 * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Source: Bureau of Economic Analysis. 31 21 21 11 Figure 6. CORPORATE PROFITS REPORTED TO IRS* (billion dollars, saar, ratio scale) 31 21 21 11 11 1 Total Profits Pre-Tax After-Tax 11 1 1 48 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 1 * Excluding Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Page 3 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
1 Figure 7. Profits (NIPA) CORPORATE PROFITS FROM CURRENT PRODUCTION* (yearly percent change) 1 Total Profits After-Tax (7.7) - 48 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 - * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits 1 Figure 8. CORPORATE PROFITS REPORTED TO IRS* (yearly percent change) 1 1 Total Profits After-Tax (1.) 1-48 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 - * Excluding Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Page 4 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
14 12 Figure 9. CORPORATE PROFITS BY INDUSTRY* (billion dollars, saar) Profits (NIPA) 14 12 1 8 Pre-Tax By Industry Nonfinancial Financial Net Receipts from the Rest of the World 1 8 6 6 4 4 2 2-2 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22-2 * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits 1 Figure 1. CORPORATE PROFITS BY INDUSTRY* (as a percent of corporate profits) 1 8 8 6 6 Pre-Tax By Industry 4 Nonfinancial Financial Net Receipts from the Rest of the World 4 2 2-2 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22-2 * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Page / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
Profits (NIPA) Figure 11. MEASURES OF PROFITS IN FINANCIAL SECTOR (billion dollars) 4 4 Pre-Tax Profits: Financial* (saar) 4 4 3 3 2 2 1 S&P Financials 12-month Forward Earnings FDIC Commercial Banks: Net Income (annualized, nsa) 12/7 3 3 2 2 1 1 1 - - -1-1 8 86 87 88 89 9 91 92 93 94 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 19 2 21 22-1 -1 * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Source: Bureau of Economic Analysis and Federal Deposit Insurance Corporation, Quarterly Banking Profile. 4 3 Figure 12. FINANCIAL PROFITS SHARE OF TOTAL PROFITS 4 3 3 3 2 2 2 2 1 1 Financial Profits as a Percent of Pre-Tax Corporate Profits S&P Forward Earnings* 1 1 - - -1-1 8 86 87 88 89 9 91 92 93 94 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 19 2 21 22-1 -1 * Using consensus 12-month forward earnings forecasts. Source: US Department of Commerce, Bureau of Economic Analysis and Thomson Reuters I/B/E/S. Page 6 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
7 7 6 6 4 4 3 3 2 2 1 1 - Figure 13. CORPORATE PRE-TAX PROFITS FROM THE REST OF THE WORLD* (billion dollars, saar) Rest of World Profits Net Receipts Payments Profits (NIPA) 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 19 2 7 7 6 6 4 4 3 3 2 2 1 1 - * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits 6 4 4 3 3 2 Figure 14. CORPORATE PRE-TAX PROFITS FROM THE REST OF THE WORLD (as a percent of pre-tax corporate profits*) Rest of World Profits Net (19.6) Payments (13.) Receipts (33.1) 6 4 4 3 3 2 2 1 1 2 1 1-6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 - * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Page 7 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
Profits (NIPA) 4 3 2 Figure 1. CORPORATE PRE-TAX PROFITS RECEIPTS FROM REST OF WORLD vs. GLOBAL INDUSTRIAL PRODUCTION (yearly percent change) Sep 1 1 1 - -1-2 -3 Receipts* OECD Industrial Production -1-1 -4 4 3 2 1-1 -2-3 -4 8 7 6 4 3 2 1-1 -2-3 -4 - -6-7 -8 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 CORPORATE PRE-TAX PROFITS RECEIPTS FROM REST OF WORLD vs. US MERCHANDISE EXPORTS (yearly percent change) Receipts* Exports 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 CORPORATE PRE-TAX PROFITS RECEIPTS FROM REST OF WORLD vs. TRADE WEIGHTED DOLLAR (yearly percent change) ROW Profits Receipts* Trade Weighted Dollar 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 * Including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits Source: Bureau of Economic Analysis and Board of Governors of the Federal Reserve System, Census Bureau and OECD. Oct Nov -2 4 3 2 1-1 -2-3 -4 3 2 1-1 -2-3 Page 8 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
Profits (NIPA vs. S&P) 2 18 Figure 16. AFTER-TAX CORPORATE PROFITS: NIPA vs. S&P * (billion dollars, quarterly) 2 18 16 14 12 1 NIPA After-Tax Profits (saar) Based on Tax Returns* From Current Production** 16 14 12 1 8 8 6 6 4 4 2 2-2 -4-6 -8-1 S&P Net Income (actual x 4, nsa) Operating (S&P data) Reported on GAAP basis (S&P data) 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2-2 -4-6 -8-1 * Excluding IVA & CCadj. ** Including IVA & CCadj. These two adjustments restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP. Source: Bureau of Economic Analysis and Standard & Poor s. 3 3 Figure 17. S&P OPERATING & REPORTED EARNINGS PER SHARE (S&P data) (dollars, quarterly) 3 3 2 2 2 2 1 1 1 1 - -1 Operating (S&P data) (31.4) Reported (S&P data) (28.) - -1-1 -1-2 -2 9 96 97 98 99 1 2 3 4 6 7 8 9 1 11 12 13 14 1 16 17 18 19 Source: Standard & Poor s. -2-2 Page 9 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
91 81 71 61 1 41 Figure 18. Retained Earnings & Dividends UNDISTRIBUTED CORPORATE PROFITS WITH IVA & CCAdj (billion dollars, saar, ratio scale) 91 81 71 61 1 41 31 31 21 21 11 11 1 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 1 Source: Bureau of Economic Analysis. 121 16 91 76 61 Figure 19. DIVIDENDS IN CORPORATE PROFITS (billion dollars, saar, ratio scale) 121 16 91 76 61 46 46 31 31 16 16 1 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 1 Source: Bureau of Economic Analysis. Page 1 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
282 242 22 162 Figure 2. CORPORATE CASH FLOW (ratio scale, billion dollars, saar) Cash Flow 282 242 22 162 122 122 82 82 42 42 Corporate Cash Flow* (237.1) Economic Depreciation** (163.3) Tax-Reported Depreciation*** (137.) 2 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 2 * After-tax retained earnings plus tax-reported depreciation. ** Corporate capital consumption allowances. *** Corporate capital consumption allowances with capital consumption adjustment. 2 1 1 Figure 21. INVENTORY VALUATION ADJUSTMENT* (billion dollars, saar) 2 1 1 - - -1-1 -1-1 -2 2 1 CAPITAL CONSUMPTION ADJUSTMENT* (billion dollars, saar) Tax-Reported > Economic Depreciation -2 2 1 - -1-2 Tax-Reported < Economic Depreciation - -1-2 -3-4 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2-3 -4 * These two adjustments restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP. Source: Bureau of Economic Analysis. Page 11 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
16 Figure 22. Profit Margin PRE-TAX CORPORATE PROFITS FROM CURRENT PRODUCTION* 16 14 12 As a Percent of National Income As a Percent of Nominal GDP 14 12 1 1 8 8 6 48 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 6 * Includes IVA & CCAdj. These two adjustments restate the historical-cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current-cost measures used in GDP. Note: Shaded areas are recessions according to the National Bureau of Economic Research. 12 Figure 23. CORPORATE PROFITS MARGINS IN GDP (after-tax profits as a percent of nominal GDP) 12 1 1 8 8 6 6 4 4 2 Based on Tax Returns* (9.) Based on Current Production** (8.9) 47 49 1 3 7 9 61 63 6 67 69 71 73 7 77 79 81 83 8 87 89 91 93 9 97 99 1 3 7 9 11 13 1 17 19 21 2 Note: Shaded areas denote recessions according to the National Bureau of Economic Research. * Excluding IVA & CCadj. ** Including IVA & CCadj. These two adjustments restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP. Source: Bureau of Economic Analysis. Page 12 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
19 18 17 16 1 14 13 12 11 1 9 8 7 6 4 3 2 Figure 24. Profit Margin PROFIT MARGIN* FROM CURRENT PRODUCTION (percent) All Corporations Nonfinancial Corporations 3 48 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 2 19 18 17 16 1 14 13 12 11 1 9 8 7 6 4 16 14 * After-tax profits including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj) divided by Gross Value Added of Corporate Business. Note: Shaded areas are recessions according to the National Bureau of Economic Research, which determined that a peak in business activity occurred in the U.S. economy in March 21. Figure 2. AFTER-TAX PROFIT MARGIN & CAPACITY UTILIZATION After-Tax Nonfinancial Corporate Profit Margin 1 9 Capacity Utilization: All Industries 12 9 1 8 8 8 6 Oct 7 4 7 2 48 2 4 6 8 6 62 64 66 68 7 72 74 76 78 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 14 16 18 2 22 6 Source: Federal Reserve Board and US Department of Commerce, Bureau of Economic Analysis. Page 13 / December 13, 217 / Stock Market Briefing: NIPA vs. S&P Profits www.
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