The US 2009/Q4 reporting season is now virtually complete. It provides a valuable snapshot of company health as the US recession ends:
• Reported earnings (red line) for the S&P 500 have recovered to $51. This is partly due to loss-makers such as GM having dropped out of the index due to bankruptcy. But it also highlights that the supposed V-shaped recovery has, in fact, only taken earnings back to the 2004 level.
• Reported earnings are still 40% below the $85 level seen at the peak of the Boom in 2007. And interestingly, analysts have become more cautious since Q4 about future increases, with Q4 2010 earnings now only expected to reach $62.
• Of course, the cheer-leaders on Wall Street will continue to ignore Reported earnings in favour of Operating earnings (blue line), where the analyst can conveniently discard negative items that spoil the bullish story. Even these, however, seem to have stalled in terms of forecasts, and are still showing Q4 as being 15% below the 2007 peak.
• Companies, however, make their own statement about the outlook when paying dividends (green line). These are normally only cut when the Board believes a quick recovery is unlikely. And they have so far fallen 22% since 2008's $252bn peak, to realign with the 1989-2003 trendline.
2009 was a year when companies cut costs and jobs in order to try and maintain earnings. in terms of future earnings, much now depends on whether companies can start to grow revenues again. If not, then whilst the recession has ended, the downturn will continue, as it did in the early 1980's and 1990's.