7/9/16: Don't Tell the Cheerleaders: U.S. Corporates Are Getting Sicker

Some at the U.S. Fed think the U.S. economy is in a rude health (http://www.cnbc.com/2016/09/06/federal-reserve-interest-rate-outllok-williams-wants-hike-as-us-economy-in-good-shape.html), and others in the financial world think the U.S. corporates are doing just fine (http://www.wsj.com/articles/u-s-corporate-profits-rise-as-gdp-ticks-down-to-1-1-1472214856). But the reality is different.

In fact, U.S. companies are bleeding cash like there is no tomorrow (http://www.bloomberg.com/news/articles/2016-09-06/buyback-addiction-getting-costly-for-s-p-500-ceos-burning-cash) and they are doing so not to support capex or investment, but to support share prices.

Source: Bloomberg

And earnings are down:

Meanwhile, earnings per share are falling (and not only in the U.S.), as noted here: http://trueeconomics.blogspot.com/2016/09/4916-earnings-per-share.html

And here is 12 ko Forward P/E ratio for the U.S. on 12mo MA basis:

iSource: FactSet https://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_9.2.16

And it gets worse on a trailing basis

So, quite obviously, things are really going swimmingly in the U.S. economy... as long as you don't  look at the production / supply side of it and focus on 'real' indicators like jobs creation (unadjusted for productivity and quality) or student loans (unadjusted for risk of default) or home sales (pending or new, of course, but not existing). Which should be helped marvelously by a Fed hike, because in a credit-based economy, sucking out fuel vapours from an empty tank is undoubtedly a great prescription for sustaining forward growth.